# EDGAR Filing Document

**Accession Number:** 0001575515
**File Stem:** 0000950170-23-005723
**Filing Date:** 2023-3
**Character Count:** 498616
**Document Hash:** bc27d5dd35918c138bf3bb4779ff4d52
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0000950170-23-005723.hdr.sgml**: 20230302

**ACCESSION NUMBER**: 0000950170-23-005723

**CONFORMED SUBMISSION TYPE**: 10-K

**PUBLIC DOCUMENT COUNT**: 152

**CONFORMED PERIOD OF REPORT**: 20230101

**FILED AS OF DATE**: 20230302

**DATE AS OF CHANGE**: 20230302

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** Sprouts Farmers Market, Inc.
- **CENTRAL INDEX KEY:** 0001575515
- **STANDARD INDUSTRIAL CLASSIFICATION:** RETAIL-GROCERY STORES [5411]
- **IRS NUMBER:** 320331600
- **STATE OF INCORPORATION:** DE
- **FISCAL YEAR END:** 0101

**FILING VALUES:**
- **FORM TYPE:** 10-K
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 001-36029
- **FILM NUMBER:** 23696627

**BUSINESS ADDRESS:**
- **STREET 1:** 5455 E. HIGH ST.
- **STREET 2:** SUITE 111
- **CITY:** PHOENIX
- **STATE:** AZ
- **ZIP:** 85054
- **BUSINESS PHONE:** 480-814-8016

**MAIL ADDRESS:**
- **STREET 1:** 5455 E. HIGH ST.
- **STREET 2:** SUITE 111
- **CITY:** PHOENIX
- **STATE:** AZ
- **ZIP:** 85054

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** Sprouts Farmers Markets, LLC
- **DATE OF NAME CHANGE:** 20130426

?xml version="1.0" encoding="ASCII"? 10-K

**UNITED STATES** 

**SECURITIES AND EXCHANGE COMMISSION** 

**Washington, D.C. 20549** 

**FORM** 10-K

☒ **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** 

**For the fiscal year ended** **January 1,** 2023

**OR** 

☐ **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** 

**For the transition period from to** 

**Commission File Number:** 001-36029

![img144088372_0.jpg](img144088372_0.jpg)

**Sprouts Farmers Market, Inc.**

**(Exact name of registrant as specified in its charter)** 

---

| | |
|:---|:---|
| Delaware | 32-0331600 |
| **(State or other jurisdiction of**<br>**incorporation or organization)** | **(I.R.S. Employer**<br>**Identification No.)** |

---

5455 East High Street**,** Suite 111

Phoenix**,** Arizona 85054

**(Address of principal executive offices and zip code)** 

**(**480**)** 814-8016

**(Registrant's telephone number, including area code)** 

**Securities registered pursuant to Section 12(b) of the Act:** 

---

| | | |
|:---|:---|:---|
| **Title of Each Class** | **Trading Symbol(s)** | &nbsp;&nbsp;&nbsp;**Name of Each Exchange on Which Registered** |
| Common Stock, $0.001 par value | SFM | NASDAQ Global Select Market |

---

**Securities registered pursuant to Section 12(g) of the Act:** 

**None** 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

---

| | | | |
|:---|:---|:---|:---|
| Large accelerated filer | ☒ | Accelerated filer | ☐ |
| Non-accelerated filer | ☐  | Smaller reporting company | ☐ |
| Emerging growth company | ☐ |  |  |

---

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of July 1, 2022, the last business day of the registrant's most recently completed second fiscal quarter, the aggregate market value of the registrant's voting common stock held by non-affiliates of the registrant was $2,761,959,072, based on the last reported sale price of such stock as reported on The NASDAQ Global Select Market on such date.

As of February 28, 2023, there were 103,067,514 outstanding shares of the registrant's common stock, $0.001 par value per share.

------

**DOCUMENTS INCORPORATED BY REFERENCE** 

Portions of the registrant's definitive Proxy Statement for its 2023 Annual Meeting of Stockholders are incorporated by reference in Part III of this Annual Report on Form 10-K where indicated. Such Proxy Statement will be filed with the Securities and Exchange Commission within 120 days of the registrant's fiscal year ended January 1, 2023.

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**TABLE OF CONTENTS** 

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| | | |
|:---|:---|:---|
|  |  | **Page**  |
| [**<u>PART I</u>**](#part_i) | [**<u>PART I</u>**](#part_i) | [**<u>PART I</u>**](#part_i) |
| Item 1. | [<u>Business</u>](#item_1_business) | 1 |
| Item 1A. | [<u>Risk Factors</u>](#item_1a_risk_factors) | 18 |
| Item 1B. | [<u>Unresolved Staff Comments</u>](#item_1b_unresolved_staff_comments) | 33 |
| Item 2. | [<u>Properties</u>](#item_2_properties) | 34 |
| Item 3. | [<u>Legal Proceedings</u>](#item_3_legal_proceedings) | 35 |
| Item 4. | [<u>Mine Safety Disclosures</u>](#item_4_mine_safety_disclosures) | 35 |
| [**<u>PART II</u>**](#part_ii) | [**<u>PART II</u>**](#part_ii) | [**<u>PART II</u>**](#part_ii) |
| Item 5. | [<u>Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities</u>](#item_5_market_for_registrants_common_equ) | 36 |
| Item 6. | [<u>Reserved</u>](#item_6_selected_financial_data) | 38 |
| Item 7. | [<u>Management's Discussion and Analysis of Financial Condition and Results of Operations</u>](#item_7_managements_discussion_analysis_f) | 39 |
| Item 7A. | [<u>Quantitative and Qualitative Disclosures About Market Risk</u>](#item_7a_quantitative_qualitative_disclos) | 55 |
| Item 8. | [<u>Financial Statements and Supplementary Data</u>](#item_8_financial_statements_supplementar) | 56 |
| Item 9. | [<u>Changes in and Disagreements with Accountants on Accounting and Financial Disclosure</u>](#item_9_changes_in_disagreements_with_acc) | 98 |
| Item 9A. | [<u>Controls and Procedures</u>](#item_9a_controls_procedures) | 98 |
| Item 9B. | [<u>Other Information</u>](#item_9b_or_information) | 99 |
| Item 9C. | [<u>Disclosure Regarding Foreign Jurisdictions that Prevent Inspections</u>](#item_9c_disc_foreign) | 100 |
| [**<u>PART III</u>**](#part_iii) | [**<u>PART III</u>**](#part_iii) | [**<u>PART III</u>**](#part_iii) |
| Item 10. | [<u>Directors, Executive Officers and Corporate Governance</u>](#item_10_directors_executive_ficers_corpo) | 101 |
| Item 11. | [<u>Executive Compensation</u>](#item_11_executive_compensation) | 101 |
| Item 12. | [<u>Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters</u>](#item_12_security_ownership_certain_benef) | 101 |
| Item 13. | [<u>Certain Relationships and Related Transactions, and Director Independence</u>](#item_13_certain_relationships_related_tr) | 101 |
| Item 14. | [<u>Principal Accountant Fees and Services</u>](#item_14_principal_accountant_fees_servic) | 101 |
| [**<u>PART IV</u>**](#part_iv) | [**<u>PART IV</u>**](#part_iv) | [**<u>PART IV</u>**](#part_iv) |
| Item 15. | [<u>Exhibits and Financial Statement Schedules</u>](#item_15_exhibits_financial_statement_sch) | 101 |
| Item 16. | [<u>Form 10-K Summary</u>](#itejm_16_form_10k_summary) | 104 |
| [<u>Signatures</u>](#signatures) | [<u>Signatures</u>](#signatures) | 105 |

---

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[**<u>**Table of Contents**</u>**](#table_of_contents)

As used in this Annual Report on Form 10-K, unless the context otherwise requires, references to the "Company," "Sprouts," "we," "us" and "our" refer to Sprouts Farmers Market, Inc., a Delaware corporation, and, where appropriate, its subsidiaries. The inclusion of our website addresses in this Annual Report on Form 10-K does not include or incorporate by reference the information on or accessible through our websites herein.

**SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS** 

This Annual Report on Form 10-K contains "forward-looking statements" that involve substantial risks and uncertainties. The statements contained in this Annual Report on Form 10-K that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (referred to as the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (referred to as the "Exchange Act"), including, but not limited to, statements regarding our growth strategy, expectations, beliefs, intentions, future operations, future financial position, future revenue, projected expenses, and plans and objectives of management. In some cases, you can identify forward-looking statements by terms such as "anticipate," "believe," "estimate," "expect," "intend," "may," "might," "plan," "project," "will," "would," "should," "could," "can," "predict," "potential," "continue," "objective," or the negative of these terms, and similar expressions intended to identify forward-looking statements. However, not all forward-looking statements contain these identifying words. These forward-looking statements reflect our current views about future events and involve known risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or achievement to be materially different from those expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section titled "Risk Factors" included in this Annual Report on Form 10-K. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

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[**<u>**Table of Contents**</u>**](#table_of_contents)

**PART I** 

**Item 1. Business** 

Sprouts Farmers Market offers a unique grocery experience featuring an open layout with fresh produce at the heart of the store. Sprouts inspires wellness naturally with a carefully curated assortment of better-for-you products paired with purpose-driven people. We continue to bring the latest in wholesome, innovative products made with lifestyle-friendly ingredients such as organic, plant-based and gluten-free. Headquartered in Phoenix with 386 stores in 23 states as of January 1, 2023, we are one of the largest and fastest growing specialty retailers of fresh, natural and organic food in the United States.

**Our Heritage** 

In 2002, we opened the first Sprouts Farmers Market store in Chandler, Arizona. From our founding in 2002 through January 1, 2023, we have grown rapidly, significantly increasing our sales, store count and profitability, including successfully rebranding 43 Henry's Farmers Market and 39 Sunflower Farmers Market stores added in 2011 and 2012, respectively, to the Sprouts banner through acquisitions. These three businesses all trace their lineage back to Henry's Farmers Market and were built with similar store formats and operations including a strong emphasis on value, produce and service in smaller, convenient locations.

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**Our Growth Strategy**

Since 2020, we have focused on a long-term growth strategy that we believe is transforming our company and driving profitable growth. We continue to execute on this strategy, focusing on the following areas:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Win with Target Customers. We are focusing attention on our target customers, identified through research as 'health enthusiasts' and 'selective shoppers', where there is ample opportunity to gain share within these customer segments. We believe our business can continue to grow by leveraging existing strengths in a unique assortment of better-for-you, quality products and by providing a full omnichannel offering through delivery or pickup via our website or the Sprouts app.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Update Format and Expand in Select Markets. We are delivering unique smaller stores with expectations of stronger returns, while maintaining the approachable, fresh-focused farmer's market heritage Sprouts is known for. In 2021, we opened three stores and remodeled one store featuring our new format, and in 2022, we opened nine new format stores. Our geographic store expansion and new store placement will intersect where our target customers live, in markets with growth potential and supply chain support, which we believe will provide a long runway of at least 10% annual unit growth beginning in 2024.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Create an Advantaged Fresh Supply Chain. We believe our network of fresh distribution centers can drive efficiencies across the chain and support growth plans. To further deliver on our fresh commitment and reputation, as well as to increase our local offerings and improve financial results, we aspire to ultimately position fresh distribution centers within a 250-mile radius of stores. With the opening of two fresh distribution centers in 2021, we now have more than 85% of our stores within 250 miles of a distribution center.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Refine Brand and Marketing Approach. We believe we are elevating our national brand recognition and positioning by telling our unique brand story rooted in product innovation and differentiation. We are investing savings from largely removing our weekly promotional print ad into increasing engagement and personalization with our target customers through digital and social connections, driving additional sales growth and loyalty.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Inspire and Engage Our Talent to Create a Best Place to Work. Subsequent to the initial launch of our long-term growth strategy, we have added the focus area of inspiring and engaging our talent through our culture, acquisition and development and total rewards program to attract and retain the talent we believe we need to execute on our strategic goals and transform our company into a premier place to work.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Deliver on Financial Targets and Box Economics. We are measuring and reporting on the success of this strategy against a number of long-term financial and operational targets. With the implementation of our strategy beginning in 2020, we have significantly improved our margin structure above our 2019 baseline.

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**Our Stores and Operations** 

We believe our stores represent a blend of farmers markets, natural foods stores, and smaller specialty markets, distinguishing us from other food retailers, while also providing a broad offering of innovative and differentiated products with lifestyle friendly ingredients for our customers.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Store Design and Experience. Our stores are organized in a "flipped" conventional food retail store model, positioning our produce at the center of the store surrounded by a specialty grocery offering. Produce remains the heart of our stores, as we typically dedicate approximately 20% of a store's selling square footage to produce, which we believe is significantly higher than many of our peers. The stores are designed with open layouts and low displays, intended to provide an easy-to-shop environment that invokes a farmers' market experience and allows our customers to view the entire store. Our small box format allows for quick in-and-out service, and our curated assortment of innovative, responsibly and locally sourced items offer treasure hunt shopping experiences. The below diagram shows a sample layout of our new smaller format stores:

![img144088372_1.jpg](img144088372_1.jpg)

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Customer Engagement. We are committed to providing, and believe we have, best-in-class customer engagement, which builds trust with our customers and differentiates the Sprouts shopping experience from that of many of our competitors. We design our stores to maximize personal connections with our purpose-driven team members, as we believe this interaction provides an opportunity to educate customers and provides a valued, differentiated customer service model, which enhances customer loyalty and increases visits and purchases over time. In addition, we continue to expand mobile and digital opportunities to further engage with our customers and provide a full omnichannel offering as many customers use both in-store and online for their grocery needs.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Store Size. Currently, our stores average approximately 28,000 square feet, which we believe is smaller than many of our peers' average stores. Under our long-term growth strategy, our new format stores feature a smaller box size, generally between 21,000 and 25,000 square feet, that stay true to our fresh-focused, farmers market heritage but are less expensive to build, reduce non-selling space, reduce occupancy and operating costs and leverage the strengths of our older, highly productive stores. Our stores are located in a variety of mid-sized and larger shopping centers, lifestyle centers and in certain cases, independent single-unit, stand-alone developments. The size of our stores and our real estate strategy provide us flexibility in site selection.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Team Members. Our stores are typically staffed with 75 to 100 full and part-time team members. We strive to create a strong and unified company culture and develop team members throughout the entire organization, and we assist our store teams with our store support office and regional teams. We have prioritized making investments in training development that we believe enhances our team members' knowledge, particularly with respect to our expanded and evolving product offerings, so our team members can continue to engage and assist our customers. We also support leadership and career opportunities for our team members at Sprouts. We believe our team members contribute to our consistently high service standards and that this helps us successfully open and operate our stores.

**Our Product Offering** 

We are a specialty natural and organic food retailer that offers a unique shopping experience for our customers. To offer the right assortment of healthy alternatives and good-for-you options, we curate our product mix to differentiated fresh, natural and organic foods and healthier options throughout all of our departments, with innovative products that feature lifestyle friendly ingredients.

**Fresh, Natural and Organic Foods** 

We focus our product offerings on fresh, natural and organic foods. Foods are generally considered "fresh" if they are minimally processed or in their raw state not subject to any type of preservation or freezing. Natural foods can be broadly defined as foods that are minimally processed and are free of synthetic preservatives, artificial sweeteners, colors, flavors and other additives, growth hormones, antibiotics, hydrogenated oils, stabilizers and emulsifiers. Essentially, natural foods are largely or completely free of non-naturally occurring chemicals and are as near to their whole, natural state as possible.

Organic foods refer to the food itself as well as the method by which it is produced. In general, organic operations must demonstrate that they are protecting natural resources, conserving biodiversity, and using only approved substances and must be certified by a USDA-accredited certifying agency. Further, retailers that handle, store or sell organic products must implement measures to protect their organic character.

**Product Categories**

We categorize the varieties of products we sell as perishable and non-perishable. Perishable product categories include produce, meat, seafood, deli, bakery, floral and dairy and dairy alternatives. Non-perishable product categories include grocery, vitamins and supplements, bulk items, frozen foods, beer and wine, and natural health and body care. The following is a breakdown of our perishable and non-perishable sales mix:

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| | | | |
|:---|:---|:---|:---|
|  | **2022** | **2021** | **2020** |
| Perishables | 58.0% | 57.7% | 57.2% |
| Non-Perishables | 42.0% | 42.3% | 42.8% |

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**Departments** 

While we focus on providing an abundant and affordable offering of natural and organic produce, our stores also include the following departments that enable customers to have a full grocery shopping experience: packaged groceries, meat and seafood, deli, vitamins and supplements, dairy and dairy alternatives, bulk items, baked goods, frozen foods, natural health and body care, and beer and wine. Our departments reflect our unique selling proposition featuring intentional curation of responsibly and locally sourced products. We believe each of our departments provides high-quality, differentiated and value-oriented offerings for our customers which we continuously refine with our customer preferences in mind.

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**Sprouts Brand** 

We have been expanding the breadth of our Sprouts branded products over the last several years and have a dedicated product development team focused on continuing this growth. We sell a broad assortment of products that are differentiated and fun to explore, offer incredible taste, quality, value and experience, and are only available at Sprouts. We started a program in 2022 to update and redesign all Sprouts branded products, and we are expecting to complete this in 2024. Though early in the rollout of the new design, we are seeing positive impact in terms of sales and recognition. The Sprouts Brand program accounted for just over 19% of our revenue in fiscal 2022. We believe our Sprouts Brand products build and enhance the overall Sprouts brand and allow us to distinguish ourselves from our competitors, promoting customer loyalty and creating a destination shopping experience.

**Product Innovation**

We believe Sprouts is on the forefront of food innovation and has paved the way for natural food trends for over two decades. Since our founding, Sprouts has carried a wide selection of innovative natural and organic brands that resonate with our target customers and inspire healthy living for everyone. We have nurtured and grown many once-shoestring brands that now serve as category leaders. As we continue to grow, we aspire to become the most innovative health and wellness specialty food retailer in the country by seeking out and growing our relationships with niche vendors to bring their unique, quality products to the millions of shoppers who visit our stores every week. Led by our dedicated foraging team, we embrace product innovation, and we believe our stores serve as an incubator for growth across the natural foods industry, highlighting new and differentiated items in our innovation center merchandising displays.

In 2022, we launched approximately 8,400 new products. We feature thousands of responsibly sourced products with certifications and attributes that are desired by our target customer base, including organic, paleo, keto, plant-based, non-GMO, fair trade, gluten-free, vegan, grass-fed, raw and humane certified. We will continue to offer a treasure hunt experience for our customers by sourcing new, innovative and differentiated offerings into every department of our stores.

**Sourcing and Distribution** 

We manage the buying of, and set the standards for, the products we sell, and we source our products from hundreds of vendors and suppliers, both domestically and internationally. We are committed to sourcing products in a manner that respects people, our communities and the environment, and we seek to partner with suppliers and service providers that share this commitment, as included in our Supplier Code of Conduct, which details our expectations regarding workplace standards and supplier best practices, and Commitment to Human Rights.

We work closely with our supply chain partners to improve animal welfare standards, sustainable seafood sourcing, support for organic agriculture and the ethical treatment of people. For an overview of our product sourcing policies and programs, please visit: about.sprouts.com/product-sourcing/.

We believe, based on our industry experience, that our strong relationships in the produce business provide us a competitive advantage and enable us to offer high-quality produce at prices we believe are generally below those of conventional food retailers and even further below high-end natural and organic food retailers. Our centralized buyers are supported by dedicated regional procurement teams that provide us flexibility to procure produce on local, regional and national levels. Our regional produce buying teams allow us to form meaningful relationships with farmers to build a path to growing with them as we grow, and our flexibility allows us to react to produce markets quickly in order to purchase produce in smaller quantities than larger chains and to help us bring new and innovative varietals to our customers at favorable pricing. These products become treasure hunt items found at our stores.

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Given the importance of produce to our stores, we source, warehouse and self-distribute nearly all produce. This ensures our produce meets our high-quality standards. We have department and product specifications that ensure a consistently high level of quality across product ingredients, production standards and other key measures of freshness, natural and organic standards. These specifications are measured at both entry and exit points to our facilities. We manage every aspect of quality control in our produce distribution centers.

As a pillar of our long-term growth strategy, we expect to create an advantaged supply chain and aspire to locate our distribution centers within 250 miles of the majority of our stores. We currently have seven distribution centers, with two located in California and one located in each of Arizona, Texas, Georgia, Colorado and Florida. The increased proximity of our distribution centers to our stores has allowed us to deliver on our fresh commitment to our customers, by sourcing more products from local farmers and improving efficiencies in our distribution process.

We believe our scale, together with this decentralized purchasing structure and flexibility generates cost savings, which we frequently pass on to our customers. Distributors and farmers recognize the volume of goods we sell through our stores and our flexible purchasing and supply chain model allows us to opportunistically acquire produce at great value which we will frequently pass along to our customers.

For all non-produce products, we use third-party distributors and vendors to distribute products directly to our stores following specifications and quality control standards that are set by us.

KeHE Distributors, LLC ("KeHE"), is our primary supplier of dry grocery and frozen food products, accounting for approximately 45%, 44% and 42% of our total purchases in fiscal 2022, 2021, and 2020, respectively. Another 3% of our total purchases in each of fiscal 2022, 2021 and 2020 were made through our secondary supplier, United Natural Foods, Inc. ("UNFI"). Our primary supplier of meat and seafood accounted for approximately 13% of our total purchases in each of fiscal 2022, 2021 and 2020. See "Risk Factors—Disruption of significant supplier relationships could negatively affect our business."

**Our Pricing, Marketing and Advertising** 

**Pricing**

As a farmers market style store, we emphasize competitive prices throughout the entire store, as we are able to pass along the benefits of our scale and purchasing power to our customers, particularly in certain categories such as produce. We position our prices with everyday value for our customers within our margin structure, with regular promotions that drive traffic and trial. Our brands products offer entry-level price points in certain categories, but also focuses on innovation, treasure hunt experience, wellness or health benefits and quality.

**Marketing and Advertising**

As part of our long-term growth strategy to refine our brand and marketing approach, we have pivoted our marketing strategy to attempt to drive more profitable growth and create more meaningful connections with our customers. Our digital-first marketing program is focused on connecting with our most important, higher value target customers via precision geographic targeting, data-driven media and focusing on personal relevance to tap into our target audience's needs and affinities.

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We believe our story telling through broadcast and digital media will reach more customers than our prior approach utilizing weekly paper flyers, which we largely discontinued. During 2022, we garnered more than 20 million weekly digital flyer impressions, demonstrating that our leverage of digital media to reach customers and share what is new and unique at Sprouts resonates with the habits of today's shoppers. We experienced a 27% increase in SMS subscribers and a 16% increase in email subscribers in 2022 compared to 2021. Additionally, digital, TV and radio ads reached shoppers with 4.3 billion impressions, and we ended the year with 2.2 million followers across all social platforms. Leveraging digital communications targeted to specific geographic areas also provides us with greater flexibility to offer different promotions and respond to local competitive activity and allows us to make our customers aware of what is new and different in our stores in real time.

Sprouts continues to educate and reach shoppers through social partnerships, special content and sponsorships. Among our 2022 highlights:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•We worked with 270 social influencers from coast-to-coast last year who shared what they love about Sprouts in their own words to their unique followers.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•In June, we announced our long-term commitment to and investment in collegiate women's athletics through partnerships with the Big 12 and Pac 12 conferences along with supporting 50 individual Name, Image and Likeness (NIL) deals with female athletes from multiple schools from both conferences, becoming the first grocery retailer to make such a commitment.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•In conjunction with our partnerships with the Big 12 and Pac 12 conferences, in September we announced individual sponsorship agreements with the athletics departments at Arizona State University, University of California, Los Angeles, University of Southern California and University of Texas, pursuant to which we will continue our commitment to women's athletics by sponsorship of season-long activities and entitlement games.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Sprouts first ever back-of-jersey sponsorship with the Angel City Football Club took flight as the club began play in the National Women's Soccer League in 2022. A portion of the partnership funds are being allocated to support local causes that provide fresh food access and further children's nutrition education throughout Los Angeles.

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We have developed and maintain the Sprouts app on which we include digital coupons and in-store scan features, and our website, www.sprouts.com, on which we display our weekly sales flyers, highlight our product offerings and offer special deals. Our website and app also feature online ordering for delivery and pickup. We offer home deliveries from our stores through partner services in all of our markets nationwide, as well as "click and collect" pickup service at all of our stores. We will continue to explore mobile and digital opportunities to further connect with our customers and leverage data for better customer insights.

**Our Customers**

We have employed deep research to understand our target customer, what occasions drive purchases, what they buy and where they buy it. Our research yielded a better understanding that our target customer is comprised of two specific groups: health enthusiasts and selective shoppers (whom we formerly referred to as experience seekers), and we are focusing on these groups in our long-term growth strategy.

Our target customer over-indexes on lifestyle choices and seeks better-for-you grocery options and innovative, quality products to support their healthy lifestyle. We believe they are engaged and connected to what they eat – how it makes them feel, where it comes from and the role it can play in their lives. Our target customer covers a wide range of incomes and age demographics – from Baby Boomers to Generation Z – and seek a variety of healthy and organic options in addition to a great store experience. We believe we only serve a small portion of these target customers at present and have an opportunity to gain a larger proportion of their market share of food-at-home purchases by targeting and identifying those innovative, attribute-driven, quality products and providing the in-store experience and support in living a healthy lifestyle that they are seeking.

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**Environmental, Social and Governance**

Central to our identity is a genuine commitment to social and environmental responsibility. We care deeply about the health and well-being of our customers, team members, communities and our planet. We work collaboratively with our supply chain partners, community organizations, and industry experts to understand our material impacts and prioritize where we direct our environmental, social and governance ("ESG") efforts to maximize our influence. Through this materiality review with internal and external stakeholders, we intend to focus our efforts on sustainable and responsible sourcing, plastics and packaging reduction and carbon emission reduction.

Our 2022 ESG highlights included:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Nearly 26% of total sales from organic products;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Approximately $200M in sales of products produced by women, minority, veteran, or LGBTQ-owned suppliers;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•$145M in local produce sales;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•21% increase in less carbon intensive plant-based product sales;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Recovered 87% of food waste, and donated the equivalent of 27 million meals; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Recycled more than 800,000 pounds of plastic from customer returned bags and product shipping wrap.

Based on our ESG accomplishments, we received a rating of AAA in the 2022 MSCI ESG Ratings assessment. The AAA rating represents the highest on the scale and signifies a company leading its industry in managing the most significant ESG risks and opportunities. Sprouts was also named as one of the 100 most sustainable companies in the world by Corporate Knights. For more information on our ESG efforts and reporting, including our most recent ESG reports, please visit about.sprouts.com/sustainability/. The information contained on or accessible through our website and in our ESG reports is not incorporated by reference into this Annual Report on Form 10-K.

**The Sprouts Healthy Communities Foundation**

In 2015, we formed the Sprouts Healthy Communities Foundation (referred to as our "Foundation"), a registered 501(c)(3) organization focused on promoting nutrition education and increasing access to fresh, nutritious food in communities where Sprouts operates. Since the Foundation's inception, it has awarded approximately $18.5 million in donations to more than 440 nonprofit organizations and hosted an estimated 270 volunteer service projects.

Our Foundation's 2022 highlights included:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Invested over $3.2 million into programs to provide an estimated three million students with school garden and nutrition education programming;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Hosted annual Sprouts' Day of Service, where 700 team members donated 3,000 volunteer hours. In total, the Foundation hosted 59 volunteer activities that resulted in 4,000 service hours in 2022;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Awarded $2.2 million in high-impact capacity grants to empower nonprofit organizations to expand their program operations; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•United more than 400 educators for the first-ever Sprouts' School Garden Summit, a national four-day learning event dedicated to strengthening the school garden and outdoor education movement.

For more information on our Foundation, please visit about.sprouts.com/sprouts-foundation/.

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**Human Capital Management** 

At Sprouts, our culture is rooted in our values of "Care", "Own it", and "Love Being Different". We remain focused on improving the health of the communities we serve. Customer engagement is critical to our culture and growth plans, and we place great importance on recruiting candidates and retaining team members that have a love of food, pride themselves on service excellence, and share our purpose driven culture. We build on our targeted recruitment efforts with robust training on customer engagement and product knowledge to ensure there is friendly, knowledgeable staff in every store. As of January 1, 2023, we had approximately 31,000 team members. None of our team members are subject to collective bargaining agreements. We consider our relations with our team members to be good, and we have never experienced a strike or significant work stoppage.

2022 Highlights. We are proud of the following achievements during the year:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•We continue to cascade our three core values to intentionally shape our culture and act as a lens to guide the decisions we make. The values will inform our behaviors and actions to create a sense of inclusion and belonging.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•We engaged in leadership development sessions across the organization with a focus on behaviors aligned to our values.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•As one of the fastest growing specialty retailers of fresh, natural and organic food in the country, we created 1,600 new jobs in 2022 through new store openings.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Additionally, we promoted 7,350 team members and filled 64% of store manager positions with internal candidates.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Team members saved approximately $18.6 million through store discounts.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•We awarded 58 scholarships to team members and dependents in 2022. Since the scholarship program's inception, we have awarded more than $1.7 million in scholarships.

Total Rewards. Because we are a people powered business, we are proud to continuously invest in our workforce by offering competitive salaries and wages, which we regularly assess against the current business environment and labor market. We proactively make changes to our total rewards programs to attract the talent that will support our growth strategy and will elevate the customer experience. Furthermore, we offer comprehensive, relevant and market competitive benefits to all eligible team members:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•We offer a variety of medical benefit plans to allow team members the ability to choose the best plan for them and their families.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•We offer well-being services and support dedicated to the mental, physical, emotional and financial well-being of our team members.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•We have a quarterly bonus plan for which all store team members are eligible.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•All team members over 18 can enroll in our 401(k) plan the first of the month following three months of service, and we offer a contribution matching program.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•We offer a paid sick time policy for all team members and offer generous leave programs.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•All hourly team members are eligible for semi-annual reviews and merit increases.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•We offer team members the opportunity to participate in the Western Association of Food Chains' Retail Management Certificate Program that provides the core skills and knowledge to move into a management role in the retail industry. During 2022, 64 Sprouts team members enrolled in this program, and 8 team members graduated from the program.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•We participated in the McKinsey Connected Leaders Academy, for the second year, engaging high performing leaders in programs designed to develop diverse leaders at Sprouts. We had 39 participants in 2022, which included leaders participating in Hispanic, Black & Asian Executive level and Manager level programs.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•We offer The Henry Boney Memorial Scholarship, which is designed to offer team members or their dependents a $3,000 scholarship to achieve their college dreams.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•All Sprouts team members can save at our stores, with a 15% Work Perk Discount. This year we offered a 30% discount to all team members over the course of six days aligned with our holiday celebrations.

Education, Training and Safety. We believe Sprouts is an attractive place to work with significant growth opportunities for our approximately 31,000 team members. To grow the next generation of leaders at Sprouts, we have developed a Leadership Training Model to on-board store managers new to Sprouts. In 2022, we had 37 Leadership graduates totaling more than 8,900 hours in training. We introduced a college fast-track program in stores in 2022 to train college graduates for assistant store management roles, with 9 graduates in the program. Our store team members completed over 674,000 hours of in-store training in 2022.

We are committed to maintaining a safe environment for our team members and customers. Our stores implement various programs to reduce and eliminate hazards, resulting in a safer workplace and improved shopping experience. In 2022, our stores reported a 12% reduction in non-COVID worker compensation claims and a 15% reduction in general liability claims over the prior year.

Diversity and Inclusion. We pride ourselves on supporting an inclusive, respectful, and caring culture throughout our organization. In 2022, approximately 51% of our team members were female and approximately 48% of our team members were ethnically diverse, which we believe to be in-line or slightly better than our grocery peers. Further, of our promotions across all store roles, 54% were awarded to female team members and 50% were awarded to ethnically diverse team members. We conduct formal talent review and succession planning to identify top talent and intentionally make hiring and promotional decisions that consider inclusion of team members from underrepresented backgrounds. In 2021, Sprouts launched its first team member resource group "Inspiring Women at Sprouts" to continue to build a culture of inclusion and belonging. In 2022, we launched three additional team member resource groups representing affinity team members and allies: "Sabor" our Hispanic & Latin resource group, "Soul" our Black/African American resource group and "Rainbow Alliance" our LBGTQIA+ resource group.

**Growing Our Business**

As part of our long-term growth plan, we plan to expand our store base with at least 10% annual unit growth beginning in 2024. Our geographic store expansion and new store placement will intersect where our target customers live, in markets with growth potential and supply chain support, providing a long runway for us to achieve our growth target.

We intend to continue to focus our growth on areas where we have a large concentration of stores, such as California and Texas, while building out our newer markets, such as Florida, Georgia and the Mid-Atlantic region, to achieve a larger concentration of stores. We have opened 16, 12 and 22 new stores in fiscal 2022, 2021 and 2020, respectively. We expect to continue to expand our store base with approximately 30 store openings planned for fiscal 2023. Beyond 2023, we expect to target at least 10% annual unit growth, subject to the impact of supply chain disruptions which delayed a number of our new store openings in 2020- 2022. See "Item 2. Properties" for additional information with respect to our planned store closures in 2023.

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The below diagram shows our store footprint, by state, as of January 1, 2023.

![img144088372_2.jpg](img144088372_2.jpg)

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**New Store Development** 

We have an extensive analytics-based process for new store site selection, which includes in-depth analysis of area demographics, competition, growth potential, traffic patterns, grocery spend and other key criteria. We have a dedicated real estate team as well as a real estate committee that includes certain of our executive officers. Multiple members of this committee often conduct an on-site inspection prior to approving any new location.

We have been successful across a variety of urban, suburban and rural locations in diverse geographies, from coast to coast, which we believe supports the portability of the Sprouts brand and store model into a wide range of markets. As we implement our long-term growth strategy, our future stores will deliver a unique and friendly shopping experience that stays true to our farmers market heritage by featuring a smaller box size than our recent vintages, generally between 21,000 and 25,000 square feet. By reducing our store square footage, we expect that our newer stores will have a lower cost to build and decreased occupancy and operating costs, while reducing non-selling space that will result in generally flat sales compared to our larger stores. We expect these cost reductions will allow us to deliver higher returns than our larger stores and continue to accelerate our growth.

See "Item 2. Properties" for additional information with respect to our store locations.

**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 and lowest during the fourth quarter.

**Our Competition and Industry**

We operate within the competitive and highly fragmented grocery store industry which encompasses a wide array of food retailers, including large national and regional conventional chain supermarkets, warehouse clubs, small grocery and convenience stores, independent grocers, and natural and organic, specialty, mass, discount and other food retail and online formats. Based on our industry experience, we believe our new stores capture market share from conventional supermarkets and specialty concepts in the supermarket segment.

Grocery customers are attracted to unique product offerings, formats and differentiated shopping experiences. Based on our industry experience, we also believe consumers are increasingly focused on health and wellness and are actively seeking healthy foods in order to improve eating habits. This overall demand for healthy products is driven by many factors, including increased awareness about the benefits of eating healthy, a greater focus on preventative health measures, and the rising costs of health care. We believe customers are attracted to retailers with comprehensive health and wellness product offerings. As a result, food retailers are offering an increased assortment of fresh, natural and organic foods as well as vitamins and supplements to meet this demand.

Our competitors primarily include other specialty food retailers such as Whole Foods, Trader Joe's, and smaller local or regional operators, conventional supermarkets such as Kroger, Albertsons, Safeway, H-E-B and Publix, as well as mass or discount retailers such as Target and Wal-Mart, warehouse membership clubs, online retailers such as Amazon, specialty stores, restaurants, home delivery and meal solution companies, and any other outlets offering food and similar products as those found in our stores. We believe Sprouts offers consumers a compelling value and differentiated products relative to our competitors and will continue to benefit from increasing consumer focus on health, wellness and value, as well as their emphasis on an enhanced shopping experience featuring a broad selection of attribute-driven products along with exceptional customer engagement.

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**Insurance and Risk Management** 

We use a combination of insurance and self-insurance to provide for potential liability for workers' compensation, general liability, product liability, director and officers' liability, team member healthcare benefits, and other casualty and property risks. Changes in legal trends and interpretations, variability in inflation rates, changes in the nature and method of claims settlement, benefit level changes due to changes in applicable laws, insolvency of insurance carriers, and changes in discount rates could all affect ultimate settlements of claims. We evaluate our insurance requirements on an ongoing basis to ensure we maintain adequate levels of coverage.

**Trademarks and Other Intellectual Property** 

We believe that our intellectual property has substantial value and has contributed to the success of our business. In particular, our trademarks, including our registered SPROUTS FARMERS MARKET<sup>®</sup> and SPROUTS<sup>®</sup> trademarks, are valuable assets that we believe reinforce our customers' favorable perception of our stores. In addition to our trademarks, we believe that our trade dress, which includes the human-scale design, arrangement, color scheme and other physical characteristics of our stores and product displays, is a large part of the farmers market atmosphere we create in our stores and enables customers to distinguish our stores and products from those of our competitors.

From time to time, third parties have used names similar to ours, have applied to register trademarks similar to ours and, we believe, have infringed or misappropriated our intellectual property rights. Third parties have also, from time to time, opposed our trademarks and challenged our intellectual property rights. We respond to these actions on a case-by-case basis. The outcomes of these actions have included both negotiated out-of-court settlements as well as litigation.

**Information Technology Systems** 

We have made significant investments in information technology infrastructure and business systems, including point-of-sale, data warehouse, labor management, purchasing, inventory control, demand forecasting, and financial and reporting systems. Our recent investments have focused on solutions to enhance our operational productivity, optimize our labor, maintain our in-stock positions and forecast our customer demand, while maintaining our high quality and value proposition. All of our stores operate under one integrated information technology platform which allows for our current and future store growth. We will continue making investments in our current information technology infrastructure and invest in systems that scale to support our growth and add efficiencies to our growing operations. In addition, we continue our focused efforts on limiting risk of cyber-security incidents by investing in IT security technology tools, resources, penetration assessments, third-party security audits and employee training.

**Regulatory Compliance**

Our stores and online retail operations are subject to various local, state and federal laws, regulations and administrative practices affecting our business. We must comply with provisions regulating health, sanitation and food safety standards, food labeling, equal employment, minimum wages, data privacy, environmental protection, licensing for the manufacture, preparation and sale of food and, in many stores, licensing for beer and wine or other alcoholic beverages, and cannabidiol ("CBD") products. Our operations, including the manufacturing, processing, formulating, packaging, labeling and advertising of products by us and our vendors are subject to regulation by various federal agencies, including the Food and Drug Administration ("FDA"), the Federal Trade Commission ("FTC"), the U.S. Department of Agriculture ("USDA"), the Consumer Product Safety Commission ("CPSC") and the Environmental Protection Agency ("EPA").

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Food. The FDA has comprehensive authority to regulate the manufacture, labeling, distribution, sale, marketing and safety of food and food ingredients (other than meat, poultry, catfish and certain egg products), as well as dietary supplements under the Federal Food, Drug, and Cosmetic Act ("FDCA"). Similarly, the USDA's Food Safety Inspection Service ("FSIS") is the public health agency responsible for ensuring that the nation's commercial supply of meat, poultry, catfish and certain egg products is safe, wholesome and correctly labeled and packaged under the Federal Meat Inspection Act and the Poultry Products Inspection Act.

Congress amended the FDCA in 2011 through passage of the Food Safety Modernization Act ("FSMA"), which greatly expanded FDA's regulatory obligations over all actors in the supply chain. Industry actors continue to determine the best pathways to implement FSMA's regulatory mandates and FDA's promulgating regulations throughout supply chains, as most requirements are now in effect. Such regulations mandate participation in USDA's Hazard Analysis and Critical Control Points ("HACCP") program or FDA's Hazard Analysis and Risk-Based Prevention Controls ("HARPC") program, as applicable, which require that risk-based preventive controls be observed by the majority of food producers. This authority applies to all domestic food facilities and, by way of imported food supplier verification requirements, to all foreign facilities that supply food products.

The FDA and FSIS also exercise broad jurisdiction over the labeling and promotion of food. Labeling is a broad concept that, under certain circumstances, extends even to product-related claims and representations made on a company's website or similar printed or graphic medium. All foods, including dietary supplements, must bear labeling that provides consumers with essential information with respect to standards of identity, net quantity, nutrition facts labeling, ingredient statement, and allergen disclosures. The agencies also regulate the use of structure/function claims, health claims and nutrient content claims. Additional in-store labeling requirements, such as disclosure of calories and other nutrient information for frequently sold items are now in effect. In addition, various nutrition initiatives that will impact many actors in our supply chain, such as the elimination of certain partially hydrogenated oils and the adoption of a new nutritional labeling format, began to go into effect in 2020.

USDA's Agricultural Marketing Service ("AMS") oversees compliance with the National Organic Standards Program and related labeling activity. In addition, AMS has responsibility for newly enacted requirements surrounding the disclosure of the presence of bioengineered ingredients in food.

AMS also enforces the Perishable Agricultural Commodities Act (PACA) which imposes fair business practices on parties engaged in the sale of perishable fruits, vegetables and some nuts. Entities that buy and sell perishable commodities require a PACA license and disputes about sales of produce are subject to rules and regulations under PACA.

Dietary Supplements. The FDA has comprehensive authority to regulate the safety of dietary supplements, dietary ingredients, labeling and current good manufacturing practices. Congress amended the FDCA in 1994 through passage of the Dietary Supplement Health and Education Act ("DSHEA"), which greatly expanded FDA's regulatory authority over dietary supplements. Through DSHEA, dietary supplements became a separately defined FDA-regulated product that is also subject to the general food regulations. Dietary supplements are allowed to carry structure/function claims which relate to support of healthy functioning. However, no statement on a dietary supplement may expressly or implicitly represent that it will diagnose, cure, mitigate, treat or prevent a disease.

Cosmetics. The FDA has comprehensive authority to regulate cosmetics under the FDCA and the Fair Packaging and Labeling Act ("FPLA"). No cosmetic product labeling or marketing may advertise any therapeutic use, such as treating or preventing disease, or claim to affect the structure or function of the body.

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Homeopathic Products. The FDA has the authority to regulate homeopathic products. Under the FDCA, homeopathic products are subject to the same requirements related to approval, adulteration and misbranding as other drug products. There are no FDA-approved products labeled as homeopathic. Any product labeled as homeopathic is being marketed in the U.S. without FDA evaluation for safety or effectiveness.

CBD Products. The 2018 Farm Bill legalized the production of hemp and products made from hemp, hemp derivatives including CBD oil and extracts, and established that these products are no longer controlled substances, as long as the cannabis plant and products derived from the plant contain no more than 0.3% THC. Under the FDCA, it is unlawful to introduce into interstate commerce a food to which has been added a substance that is an active ingredient in an approved drug product or a substance for which substantial clinical investigations have been instituted, and the existence of such investigations has been made public. FDA has approved one drug product containing CBD as an active ingredient. Consequently, because CBD has been approved as a drug active ingredient, FDA's current legal position is that CBD cannot be legally contained in a dietary supplement or food product. This restriction only applies to dietary supplements and foods. To date, FDA has limited its enforcement actions to those ingestible, topical, and cosmetic CBD products that make therapeutic or drug claims. However, regardless of enforcement priorities, FDA has the authority to remove from the market any CBD product if it is adulterated, its labeling is false or misleading, it is otherwise misbranded, or if it violates any other FDCA or FDA requirement or regulation. This enforcement authority extends to states that have legalized and regulated the distribution of ingestible CBD products.

Food, Cosmetics, Homeopathic and CBD Products, and Dietary Supplement Advertising. The FTC exercises jurisdiction over the advertising of foods, cosmetics, homeopathic and CBD products, and dietary supplements. The FTC has the power to institute monetary sanctions and the imposition of consent decrees and penalties that can severely limit a company's business practices. In recent years, the FTC has instituted numerous enforcement actions against companies for failure to have adequate substantiation for claims made in advertising or for the use of false or misleading advertising claims.

Compliance. As is common in our industry, we rely on our suppliers and contract manufacturers to ensure that the products they manufacture and sell to us comply with all applicable regulatory and legislative requirements. In general, we seek certifications of compliance, representations and warranties, indemnification and/or insurance from our suppliers and contract manufacturers. However, even with adequate insurance and indemnification, any claims of non-compliance could significantly damage our reputation and consumer confidence in products we sell. In addition, the failure of such products to comply with applicable regulatory and legislative requirements could prevent us from marketing the products or require us to recall or remove such products from our stores. In order to comply with applicable statutes and regulations, our suppliers and contract manufacturers have from time to time reformulated, eliminated or relabeled certain of their products and we have revised certain provisions of our sales and marketing program.

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**COVID-19 Pandemic**

Our operations have generally stabilized since the onset of the COVID-19 pandemic in 2020. However, we continue to experience varying levels of inflation through increased product costs attributable in part due to the effects of the pandemic, which we continue to pass through to retail pricing. In addition, due to continued difficulties in obtaining necessary equipment from third parties and inflationary pressures due to supply chain delays complicated by the COVID-19 pandemic, we have experienced and may continue to experience increased costs and delays in our planned new store openings. See "Risk Factors—The coronavirus (COVID-19) pandemic has disrupted our business and could negatively impact our financial condition." for additional information.

**Corporate Offices** 

Our principal executive offices are located at 5455 E. High Street, Suite 111, Phoenix, Arizona 85054. Our website address is www.sprouts.com. The information on or accessible through our website is not incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file with the Securities and Exchange Commission ("SEC").

**Available Information**

Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports, and the Proxy Statement for our Annual Meeting of Stockholders are made available, free of charge, on our investor relations website at http://investors.sprouts.com/, as soon as reasonably practicable after such reports have been filed with or furnished to the SEC. We also use our website as a tool to disclose important information about our company and comply with our disclosure obligations under Regulation Fair Disclosure. Our corporate governance documents, code of ethics and Board committee charters and policies are also posted on http://investors.sprouts.com/.

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**Item 1A. Risk Factors** 

Certain factors may have a material adverse effect on our business, financial condition and results of operations. You should carefully consider the risks and uncertainties described below, together with all of the other information in this Annual Report on Form 10-K, including our consolidated financial statements and related notes. Any of the following risks could materially and adversely affect our business, results of operations, cash flows, financial condition, or prospects and cause the value of our common stock to decline.

**Market and Other External Risks** 

**General economic conditions that impact consumer spending or result in competitive responses could adversely affect our business.** 

The retail food business is sensitive to changes in general economic conditions. In addition to the impact of the COVID-19 pandemic, inflation, recessionary economic cycles, increases in interest rates, higher prices for commodities, raw materials, fuel and other energy, high levels of unemployment and consumer debt, depressed home values, high tax rates, tariffs and other macroeconomic factors that affect consumer spending and confidence or buying habits may materially adversely affect the demand for and prices of products we sell in our stores. As a result, consumers may be more cautious and could reduce their spending in our stores or shift their spending to lower-priced competition, such as warehouse membership clubs, dollar stores, online retailers or extreme value formats, which could have a material and adverse effect on our operating results and financial condition.

In addition, prolonged inflation or deflation can impact our business. Food inflation, such as the elevated levels we experienced during 2022, when combined with reduced consumer spending, could also reduce sales, gross profit margins and comparable store sales. As a result, our operating results and financial condition could be materially adversely affected. Food deflation across multiple categories, particularly in produce and proteins, could also reduce sales growth and earnings if our competitors react by lowering their retail pricing and expanding their promotional activities, which can lead to retail deflation higher than cost deflation that could reduce our sales, gross profit margins and comparable store sales.

**Our failure to compete successfully in our competitive industry may adversely affect our revenues and profitability.** 

We operate in the competitive retail food industry. Our competitors include specialty grocers, conventional supermarkets, natural food stores, mass or discount retailers, warehouse membership clubs, online retailers and specialty stores, as well as restaurants and home delivery and home meal solution providers. These businesses compete with us for products, customers and locations. We compete on a combination of factors, primarily differentiated product selection, quality, convenience, shopping experience, customer engagement, store format, location, price and delivery options. Our failure to offer products or services that appeal to our customers' preferences or to effectively market these products or services could lead to a decrease in our sales. To the extent that our competitors offer lower prices or similar products, our ability to maintain profit margins and sales levels may be negatively impacted. In addition, some competitors are aggressively expanding their number of stores or their product offerings, increasing the space allocated to perishable, prepared and specialty foods, including fresh, natural and organic foods, and enhancing options of engaging with and delivering their products to customers. Some of these competitors may have been in business longer or may have greater financial or marketing resources than we do and may be able to devote greater resources to sourcing, promoting and selling their products. As competition in certain areas or platforms intensifies or competitors open stores or expand delivery options within close proximity to our stores, our results of operations and cash flows may be negatively impacted through a loss of sales, decrease in customer traffic and market share, reduction in margin from competitive price changes or greater operating costs.

**We rely heavily on sales of fresh produce and quality fresh, natural and organic products, and product supply disruptions may have an adverse effect on our profitability and operating results.** 

We have a significant focus on perishable products, including fresh produce and natural and organic products. Sales of produce accounted for approximately 20% and 21% of our net sales in fiscal 2022 and

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2021, respectively. Despite temporary challenges related to the COVID-19 pandemic, we have generally not experienced significant difficulty to date in maintaining the supply of our produce and fresh, natural and organic products that meet our quality standards. However, there is no assurance that these products will be available to meet our needs in the future. The availability of such products at competitive prices depends on many factors beyond our control, including the number and size of farms that grow natural or organic crops or raise livestock that meet our quality, welfare and production standards, tariffs and import regulations or restrictions on foreign-sourced products and the ability of our vendors to maintain organic, non-genetically modified or other applicable third-party certifications for such products. Produce is also vulnerable to adverse weather conditions and natural disasters, such as floods, droughts, storms, frosts, wildfires, earthquakes, hurricanes, pestilences and other extreme or abnormal environmental conditions, including the potential effects of climate change, any of which can lower crop yields and reduce crop size and quality. This could reduce the available supply of, or increase the price of, fresh produce, which may adversely impact sales of our fresh produce and our other products that rely on produce as a key ingredient.

In addition, we and our suppliers compete with other food retailers in the procurement of fresh, natural and organic products, and other specialty, attribute-driven products which are often less available than conventional products. If our competitors significantly increase these types of product offerings due to increases in consumer demand or otherwise, we and our suppliers may not be able to obtain a sufficient supply of such products on favorable terms, or at all, and our sales may decrease, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. We could also suffer significant inventory losses in the event of disruption of our supply chain network or extended power outages in our stores or distribution centers. If we are unable to maintain inventory levels suitable for our business needs, it would materially adversely affect our financial condition, results of operations and cash flows.

**The current geographic concentration of our stores creates an exposure to local or regional downturns or catastrophic occurrences and the impact of climate change.** 

As of January 1, 2023, we operated 130 stores in California, making California our largest market representing 34% of our total stores in fiscal 2022. We also have store concentration in Texas, Arizona and Colorado, operating 51, 44 and 32 stores in those states, respectively, and representing 13%, 11% and 8% of our total stores in fiscal 2022, respectively. As we execute our long-term growth strategy, we may become even more concentrated in these markets, as well as identified expansion markets such as Florida, in which we operated 35 stores in fiscal 2022. In addition, we source a large portion of our produce from California, ranging from approximately 40% to approximately 70% depending on the time of year. As a result, our business is currently more susceptible to regional conditions than the operations of more geographically diversified competitors, and we are vulnerable to economic downturns in those regions. Any unforeseen events or circumstances that negatively affect these areas in which we have stores or from which we obtain products could materially adversely affect our revenues and profitability. These factors include, among other things, changes in demographics, population and employee bases; regulation; wage increases; changes in economic conditions; floods, prolonged droughts, diminished water resources, windstorms such as tornados, cyclones, hurricanes and tropical storms, winter storms or other severe weather conditions, which may be caused or exacerbated by climate change; and other catastrophic occurrences, such as pandemics, earthquakes or wildfires. Such conditions may result in reduced customer traffic and spending in our stores, physical damage to our stores, full or partial loss of power in our stores, loss of inventory, closure of one or more of our stores, inadequate work force in our markets, temporary disruption in the supply of products whether from self or third-party distribution, delays in the delivery of goods to our stores and a reduction in the availability of products in our stores. Any of these factors, particularly in areas with significant geographic concentration of our stores or produce grocers on which we rely, may disrupt our business and materially adversely affect our financial condition, results of operations and cash flows.

**Fluctuations in commodity prices and availability may impact profitability.** 

Many products we sell include ingredients such as wheat, corn, oils, milk, sugar, cocoa, nuts and other key commodities. Many commodity prices are subject to significant fluctuations and may be

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impacted by economic factors such as inflation and tariffs, and availability of commodities may be impacted by weather events and catastrophic occurrences. Any increase in prices of such key ingredients may cause our vendors to seek price increases from us, and price decreases may result in our competitors reducing retail prices on items containing such ingredients. If we are unable to mitigate these fluctuations, our profitability may be impacted either through increased costs to us or lower prices and loss of customers due to competitive conditions, which may impact gross margins, or through reduced revenue as a result of a decline in the number and average size of customer transactions.

**The coronavirus (COVID-19) pandemic has disrupted our business and could negatively impact our financial condition.**

The unprecedented global outbreak of the novel coronavirus (COVID-19) that began in the first quarter of 2020 had a significant impact on all aspects of our business, including strains on our entire supply chain, store operations and merchandising functions. While our operations have generally stabilized since the peak of the pandemic, our operations may continue to be impacted by any continuing effects of COVID-19, including resurgences and variants of COVID-19 or outbreaks of any new viruses or contagions. These impacts may include difficulties and delays in sourcing, transporting and stocking products, inabilities to staff our stores and distribution centers at adequate levels to conduct our operations resulting in store closures or operating hour reductions, and incurring significant costs in support of our front-line store team members for enhanced benefits, safety measures and government-mandated wage increases.

Measures taken by governmental authorities to reduce the transmission of COVID-19 or any new viruses, including vaccine and testing mandates, may cause additional costs and disruptions in workforce availability, as well as costly litigation, enforcement actions and penalties. In addition, the COVID-19 pandemic has required and COVID-19 or new viruses may in the future again require us to make controversial decisions and recommendations about precautionary measures such as facial coverings, vaccinations and testing that could impact our results, including by impacting our brand, team member retention and satisfaction, and the willingness of customers to visit our stores. Store traffic may further decline as customers shop less frequently, choose other retail or online outlets to minimize potential exposure to COVID-19 or return to restaurants and other outlets to purchase and consume food. We have incurred incremental ecommerce fees from pre-pandemic levels as more customers adopt our digital solutions.

The full extent to which the COVID-19 pandemic impacts our business and financial condition will largely depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the pandemic, emergence of variants and the actions necessary to contain COVID-19 or treat its impact.

**Supply chain disruptions have delayed our store growth plans.**

Due to continued difficulties in obtaining necessary equipment from third parties due to supply chain delays complicated by the COVID-19 pandemic, we may continue to experience delays in our new store openings until disruptions to the global supply chain have been resolved, the timing of which is uncertain.

**Another widespread health epidemic or other incidents beyond our control could materially impact our business.** 

As evidenced by the ongoing COVID-19 pandemic, our business could be severely impacted by other widespread regional, national or global health epidemics or other incidents beyond our control such as terrorism, riots, acts of violence and other crimes. Such events may cause customers to avoid public gathering places such as our stores or otherwise change their shopping behaviors. Additionally, these occurrences could adversely impact our business by disrupting production and delivery of products to our stores and by impacting our ability to appropriately staff our stores.

**Increasing energy costs, unless offset by more efficient usage or other operational responses, may impact our profitability.** 

We utilize natural gas, water, sewer and electricity in our stores and our transportation providers use gasoline and diesel in trucks that deliver products to our stores. We have been adversely impacted by the

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increased costs of energy and may be further adversely impacted if costs continue to increase. We may also be required to pay certain adjustments or other amounts pursuant to our supply and delivery contracts in connection with increases in fuel prices. Increases in energy costs, whether driven by increased demand, decreased or disrupted supply, increased environmental regulations or an anticipation of any such events or otherwise, will increase the costs of operating our stores and distribution centers. Our shipping costs also may increase if fuel and freight prices increase. We may not be able to recover these rising costs through increased prices charged to our customers, and any increased prices may exacerbate the risk of customers choosing lower-cost alternatives. In addition, if we are unsuccessful in attempts to protect against these increases in energy costs through long-term energy contracts, improved energy procurement, improved efficiency and other operational improvements, the overall costs of operating our stores will increase, which would impact our profitability, financial condition, results of operations and cash flows.

**We may require additional capital to fund the expansion of our business, and our inability to obtain such capital could harm our business.** 

To support our growth strategy, we must have sufficient capital to continue to make significant investments in our new and existing stores and advertising. If cash flows from operations are not sufficient, we may need additional equity or debt financing to provide the funds required to expand our business. If such financing is not available on satisfactory terms or at all, we may be unable to expand our business or to develop new business at the rate desired. Debt financing increases expenses, may contain covenants that restrict the operation of our business, and must be repaid regardless of operating results. Equity financing, or debt financing that is convertible into equity, could result in additional dilution to our existing stockholders. Our inability to obtain adequate capital resources, whether in the form of equity or debt, to fund our business and growth strategy may require us to delay, scale back or eliminate some or all of our operations or the expansion of our business, which may have a material adverse effect on our business, operating results, financial condition or prospects.

**Business and Operating Risks** 

**Our ability to execute on our long-term growth strategy largely depends on new store openings, and our failure to successfully open new stores could negatively impact our business.** 

Our continued growth depends, in large part, on our ability to open new stores and to operate those stores successfully. Successful implementation of our long-term growth strategy depends upon a number of factors, including our ability to effectively achieve a level of cash flow or obtain necessary financing to support our expansion; find suitable sites for new store locations; manage supply chain constraints to obtain necessary equipment; negotiate and execute leases on acceptable terms; secure and manage the inventory necessary for the launch and operation of our new stores; hire, train and retain skilled team members; promote and market new stores; successfully execute and gain customer acceptance of our new store format; and address competitive merchandising, distribution, operational and other challenges encountered in connection with expansion into new geographic areas and markets. Although we plan to expand our store base primarily through new store openings, we may grow through strategic acquisitions. Our ability to grow through strategic acquisitions will depend upon our ability to identify suitable targets and negotiate acceptable terms and conditions for their acquisition, as well as our ability to obtain financing for such acquisitions, integrate the acquired stores into our existing store base and retain the customers of such stores. If we are ineffective in performing these activities, then our efforts to open and operate new stores may be unsuccessful or unprofitable, and we may be unable to execute our growth strategy.

We opened 16 and 12 stores in fiscal 2022 and 2021, respectively, and we currently expect to open approximately 30 new stores in 2023. Beyond 2023, we expect to achieve 10% annual unit growth, including penetration of new markets with a greater concentration of new stores. However, we may not achieve this expected level of new store growth due to inability to find suitable sites, supply chain disruptions or otherwise. We may not have the level of cash flow or financing necessary to support our growth strategy. Additionally, our proposed expansion will place increased demands on our operational, managerial and administrative resources. These increased demands could cause us to operate our existing business less effectively, which in turn could cause deterioration in the financial performance of our existing stores. Further, new store openings in markets where we have existing stores may result in reduced sales volumes at our existing stores in those markets. If we experience a decline in performance, we may slow or discontinue store openings, or we may decide to close stores that we are unable to

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operate in a profitable manner. If we fail to successfully implement our growth strategy, including by opening new stores, our financial condition, results of operations and cash flows may be adversely affected.

**We may be unable to maintain or increase comparable store sales, which could negatively impact our business and stock price.** 

We may not be able to achieve or improve the levels of comparable store sales that we have experienced in the past. Our comparable store sales growth could be lower than our historical average for many reasons, including general economic conditions, competition, cycling prior year performance and the other matters discussed in these Risk Factors. These factors may cause our comparable store sales results to be materially lower than in recent periods, which could harm our business and result in a decline in the price of our common stock.

**Real or perceived concerns that products we sell could cause unexpected illness, side effects, injury or death could result in their discontinuance or expose us to lawsuits, either of which could result in unexpected costs and damage to our reputation.** 

There is increasing public awareness regarding and governmental scrutiny of food safety. Unexpected illness, side effects, injury, or death caused by products we prepare and/or sell, in particular our Sprouts brand products, or involving vendors that provide us with products or services that are consumed by our customers could expose us to severe damage to our reputation, product liability or negligence lawsuits or government enforcement actions. Any claims brought against us may exceed our existing or future insurance policy coverage or limits. Any judgment against us that is in excess of our policy limits would have to be paid from our cash reserves, which would reduce our capital resources. Further, we may not have sufficient capital resources to pay a judgment, in which case our creditors could levy against our assets. Such illnesses, side effects, injuries or deaths could also result in the discontinuance of sales of these products or our relationship with such vendors or prevent us from achieving market acceptance of the affected products.

As a fresh, natural and organic retailer, we believe that many customers choose to shop our stores because of their interest in health, nutrition and food safety. As a result, we believe that our customers hold us to a high food safety and quality standards, in particular our Sprouts brand products. Therefore, real or perceived quality or food safety concerns, whether or not ultimately based on fact, and whether or not involving products prepared and/or sold at our stores or vendors that supply us with products or provide us with services, would cause negative publicity and lost confidence regarding our company, brand, or products, which could in turn harm our reputation and net sales, and could have a material adverse effect on our business, results of operations, cash flows or financial condition.

**Any significant interruption in the operations of our distribution centers or supply chain network could disrupt our ability to deliver our produce and other products in a timely manner.** 

We self-distribute our produce through seven distribution centers located in Arizona, Texas, northern California, southern California, Georgia, Colorado and Florida. As we further expand our geographic footprint, we may require additional distribution centers. Any unanticipated or unusual expenses or significant interruption or failure in the operation of our distribution center infrastructure, such as disruptions due to fire, severe weather or other catastrophic events, power outages, labor shortages or disagreements, shipping or infrastructure problems, food safety concerns, integration of new distribution centers into our supply chain network, inability of our new distribution centers to perform as expected or contractual disputes with third-party service providers could result in increased expenses and adversely impact our ability to distribute produce and other products to our stores. Such interruptions could result in lost sales and a loss of customer loyalty to our brand, as well as increased costs from third-party service providers. While we maintain business interruption and property insurance, if the operation of our distribution centers or transportation network were interrupted for any reason, causing delays in shipment of product to our stores, our insurance may not be sufficient to cover losses we experience, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

In addition, unexpected delays in deliveries from vendors that ship directly to our stores or increases in distribution and transportation costs (including through increased labor or fuel costs) could have a material adverse effect on our financial condition, results of operations and cash flows. Labor shortages, work stoppages or wage increases in the transportation or other industries, long-term disruptions to the national and international transportation infrastructure, reduction in capacity and industry-specific

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regulations such as hours-of-service rules that lead to delays or interruptions of deliveries or increased costs could negatively affect our business.

**Disruption of significant supplier relationships could negatively affect our business.** 

KeHE is our primary supplier of dry grocery and frozen food products, accounting for approximately 45% and 44% of our total purchases in fiscal 2022 and 2021, respectively. Our current primary contractual relationship with KeHE continues through July 18, 2025 and provides that KeHE will be our primary supplier for all of our stores. Our primary supplier of meat and seafood products accounted for approximately 13% of our total purchases in both fiscal 2022 and 2021, respectively. Due to this concentration of purchases from a small number of third-party suppliers, the cancellation of our distribution arrangements or the disruption, delay or inability of our suppliers to timely deliver product to our stores in quantities or within service parameters that meet our requirements may materially and adversely affect our operating results while we establish alternative supply chain channels. Another 3% of our total purchases in both fiscal 2022 and 2021, respectively, were made through our secondary supplier of dry grocery and frozen food products, UNFI. Our current contractual relationship with UNFI continues through March 31, 2023, and we are engaging in discussions regarding a renewal. There is no assurance UNFI or other distributors will be able to fulfill our needs on favorable terms or at all. In addition, if KeHE, UNFI or any of our other suppliers fail to comply with food safety, labeling or other laws and regulations, or face allegations of non-compliance, their operations may be disrupted. Further, the food distribution and manufacturing industries are dynamic. Consolidation of distributors or the manufacturers that supply them could reduce our supply options and detrimentally impact the terms under which we purchase products. We may not be able to find replacement suppliers on commercially reasonable terms, which would have a material adverse effect on our financial condition, results of operations and cash flows.

**Disruptions to, security breaches or non-compliance involving, our information technology systems could harm our ability to run our business and expose us to potential liability and loss of revenues.**

We rely extensively on information technology systems for point-of-sale processing in our stores, supply chain, financial reporting, human resources, store operations, ecommerce and various other processes and transactions. Our information technology systems are subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, security breaches, including tampering with hardware and breaches of our transaction processing or other systems that could result in the compromise of confidential customer or team member data, ransomware attacks, catastrophic events, and usage errors by our team members. Phishing attacks have emerged as particularly pervasive, including as a means for ransomware attacks, which have increased both in frequency and breadth. Point-of-sale hardware in our stores has also been targeted by individuals attempting to install skimmer devices or conduct other tampering to illicitly obtain payment card information. In response to these wide-ranging cybersecurity and data privacy risks, we have implemented numerous security protocols in order to strengthen security, and we maintain a customary cyber insurance policy, but there can be no assurance breaches will not occur in the future, be detected in a timely manner or be covered by our insurance policy. Significant expenditures could be required to remedy future cybersecurity problems and protect against future breaches. Additionally, compliance with current and future applicable U.S. privacy, cybersecurity and related laws, including for example the California Privacy Act of 2018 ("CCPA") and the California Privacy Rights Act ("CPRA"), can be costly and time-consuming. These costs could have a material adverse effect on our business, and our efforts may not meaningfully limit the success of future attempts to breach our information technology systems.

Our information technology systems may also fail to perform as we anticipate, and we may encounter difficulties or significant expenses in implementing new systems, adapting these systems to changing technologies or legal requirements or expanding them to meet the future needs and growth of our business. If our systems are improperly implemented, breached, damaged, cease to function properly, do not function as anticipated or are perceived to have failed, we may have to make significant investments to fix or replace them; suffer interruptions in our operations; experience data loss; incur liability to our customers, team members and others; face costly litigation, enforcement actions and penalties; and our brand and reputation with our customers may be harmed. Various third parties, such as our suppliers and payment processors and their suppliers (i.e., our fourth parties), also rely heavily on information technology systems, and any failure of these systems for any reason (e.g., cybersecurity

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attack, software glitch, human or system error or omission), could also cause loss of sales, transactional or other data and significant interruptions to our business. Any security breach or other material interruption in the information technology systems we rely on may have a material adverse effect on our business, operating results and financial condition.

In addition, many of our store support team members remain in a remote or hybrid work environment in response to changes in the work environment due to the COVID-19 pandemic. Our failure to provide appropriate technological resources and maintain adequate safeguards around our remote work environment could result in loss of productivity and usage errors by our team members or the loss or compromise of confidential customer, team member or company data. In addition, the remote work environment may increase certain risks to our business, including phishing and other cybersecurity attacks.

**If we are unable to successfully identify market trends and react to changing consumer preferences in a timely manner, our sales may decrease.** 

We believe our success depends, in substantial part, on our ability to:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•anticipate, identify and react to fresh, natural and organic grocery and dietary supplement trends and changing consumer preferences and demographics in a timely manner;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•translate market trends into appropriate, innovative, saleable product and service offerings in our stores before our competitors and effectively market these trends to our target customers; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•develop and maintain vendor and service provider relationships that provide us access to the newest on-trend merchandise and customer engagement options on reasonable terms.

Consumer preferences often change rapidly and without warning, moving from one trend to another among many product or retail concepts. Our performance is impacted by trends regarding healthy lifestyles, product attributes, dietary preferences, convenient options, fresh, natural and organic products, meal solutions, ingredient transparency and sustainability, and vitamins and supplements, as well as new and evolving methods of engaging with and delivering our products to our customers. Consumer preferences towards vitamins, supplements or fresh, natural and organic food products might shift as a result of, among other things, economic conditions, food safety perceptions, scientific research or findings regarding the benefits or efficacy of such products, national media attention and the cost, attributes or sustainability of these products. Our store offerings currently include fresh, natural and organic products and dietary supplements. A change in consumer preferences away from our offerings would have a material adverse effect on our business. Additionally, negative publicity over the safety, efficacy or benefits of any such items, in particular our Sprouts brand products, may adversely affect demand for our products, and could result in lower customer traffic, sales, results of operations and cash flows.

If we are unable to anticipate and satisfy consumer preferences with respect to product offerings and customer engagement options, our sales may decrease, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

**Our newly opened stores may negatively impact our financial results in the short-term, and may not achieve sales and operating levels consistent with our more mature stores on a timely basis or at all.** 

We have actively pursued new store growth as part of our long-term strategy and plan to continue doing so in the future. Our new store openings may not be as successful or reach the sales and profitability levels of our existing stores. New store openings may negatively impact our financial results in the short-term due to the effect of store opening costs and lower sales and contribution to overall profitability during the initial period following opening. New stores build their sales volume and their customer base over time and, as a result, generally have lower margins and higher operating expenses, as a percentage of net sales, than our more mature stores. New stores may not achieve sustained sales and operating levels consistent with our more mature store base on a timely basis or at all. This may result in store closures or otherwise have an adverse effect on our financial condition and operating results. Further, we have experienced in the past, and expect to experience in the future, some sales volume transfer from our existing stores to our new stores as some of our existing customers switch to

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new, closer locations. If our new stores are less profitable than our existing stores, or if we experience sales volume transfer from our existing stores, our financial condition and operating results may be adversely affected.

On many of our projects, we have received landlord contributions for leasehold improvements and other build-out costs. We cannot guarantee that we will be able to continue to receive landlord contributions at the same levels or at all. Any reductions of landlord contributions could have an adverse impact on our new store cash-on-cash returns and our operating results.

**We may be unable to maintain or improve our operating margins, which could adversely affect our financial condition and ability to grow.** 

If we are unable to successfully manage the potential difficulties associated with store growth, we may not be able to capture the efficiencies of scale that we expect from expansion. If we are not able to capture efficiencies of scale related to our smaller store format, improve our systems, sustain cost discipline, optimize promotional activity and maintain appropriate store labor levels and disciplined product selection, our customer traffic and operating margins may stagnate or decline. In addition, competition and pricing pressures from competitors and our inability to timely pass on product cost increases due to inflation or otherwise to our customers through retail price increases may also adversely impact our operating margins. Both our inability to capture the efficiencies from scale and competition could have a material adverse effect on our business, financial condition, results of operations and cash flows and adversely affect the price of our common stock.

**If we fail to maintain our reputation and the value of our brand, our sales may decline.** 

We believe our continued success depends on our ability to maintain and grow the value of the Sprouts brand. Maintaining, promoting and positioning our brand and reputation will depend largely on the success of our marketing and merchandising efforts and our ability to provide a consistent, high-quality customer experience. Brand value is based in large part on perceptions of subjective qualities, and even isolated incidents involving our company, our team members, suppliers, agents, marketing partners, or third-party service providers, or the products we sell can erode trust and confidence, particularly if they involve our Sprouts brand products, or result in adverse publicity, governmental investigations or litigation. Our brand could be adversely affected if we fail to achieve these objectives, or if our public image or reputation were to be tarnished by negative publicity.

**The loss of key management could negatively affect our business.** 

We are dependent upon a number of key management and other team members. If we were to lose the services of a key member of our management team or a significant number of key team members within a short period of time, this could have a material adverse effect on our operations as we may not be able to find suitable individuals to replace them on a timely basis, if at all. In addition, any such departure could be viewed in a negative light by investors and analysts, which may cause our stock price to decline. We do not maintain key person insurance on any team member.

**If we are unable to attract, train and retain team members, we may not be able to grow or successfully operate our business.** 

The food retail industry is labor intensive. Our continued success and ability to grow through new store openings is dependent upon our ability to attract and retain qualified team members in our stores and at our store support offices who understand and appreciate our culture and are able to represent our brand effectively and establish credibility with our business partners and customers. We face intense competition for qualified team members, many of whom are subject to offers from competing employers. Due to a tight labor market, availability of talent and other factors, we have experienced, and could continue to experience, a shortage of labor for store positions. Our ability to meet our labor needs, while controlling wage and labor-related costs, is subject to numerous external factors, including the availability of a sufficient number of qualified persons in the work force in the markets in which we are located, unemployment levels within those markets, unionization of the available work force, prevailing wage rates, changing demographics, health and other insurance costs and changes in employment legislation. In the event of increasing wage rates, if we fail to increase our wages competitively, the quality of our workforce could decline, causing our customer engagement to suffer, while increasing our wages could

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cause our earnings to decrease. If we are unable to hire, train and retain team members capable of meeting our business needs and expectations, our business and brand image may be impaired. Any failure to meet our staffing needs or any material increase in turnover rates of our team members or team member wages may adversely affect our business, results of operations, cash flows or financial condition.

**Union attempts to organize our team members could negatively affect our business.** 

None of our team members are currently subject to a collective bargaining agreement. As we continue to grow and enter different regions, unions may attempt to organize all or part of our team member base at certain stores or within certain regions. Responding to such organization attempts may distract management and team members and may have a negative financial impact on individual stores, or on our business as a whole.

**Higher wage and benefit costs could adversely affect our business.** 

Changes in federal and state minimum wage laws and other laws relating to employee compensation and benefits could cause us to incur additional wage and benefit costs, as well as increased contractual costs associated with our service providers. Increased labor costs brought about by changes in minimum wage laws, other regulations or prevailing market conditions would increase our expenses and have an adverse impact on our profitability.

**Our lease obligations could adversely affect our financial performance and may require us to continue paying rent for store locations that we no longer operate.** 

We are subject to risks associated with our current and future store, distribution center and administrative office real estate leases. 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.

Further, we generally cannot cancel our leases, so if we decide to close or relocate a location, we may nonetheless be committed to perform our obligations under the applicable lease, including paying the base rent for the remaining lease term. In addition, as our leases expire, we may fail to negotiate renewals, either on commercially acceptable terms or any terms at all, which could materially adversely affect our business, results of operations, cash flows or financial condition.

**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 potential liabilities, including for workers' compensation, general liability (including, in connection with legal proceedings described under "—Legal proceedings could materially impact our business, financial condition, results of operations and cash flows" below), property insurance, director and officers' liability insurance, automobile liability insurance, environmental liability insurance, 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.

**We may be unable to generate sufficient cash flow to satisfy our debt service obligations, which could adversely impact our business.** 

As of January 1, 2023, we had outstanding indebtedness of $250.0 million under our credit agreement (referred to as the "Credit Agreement"). We may incur additional indebtedness in the future, including borrowings under our Credit Agreement. Our indebtedness, any additional indebtedness we

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may incur, or any hedging arrangements related to such indebtedness could require us to divert funds identified for other purposes for debt service and impair our liquidity position. If we cannot generate sufficient cash flow from operations to service our debt, we may need to refinance our debt, dispose of assets or issue equity to obtain necessary funds. We do not know whether we will be able to take any of such actions on a timely basis, on terms satisfactory to us or at all.

**Covenants in our Credit Agreement restrict our operational flexibility.** 

Our Credit Agreement contains usual and customary restrictive covenants relating to our management and the operation of our business, including incurring additional indebtedness; making certain investments; merging, dissolving, liquidating, consolidating, or disposing of all or substantially all of our assets; paying dividends, making distributions, or redeeming capital stock; entering into transactions with our affiliates; and granting liens on our assets.

Our Credit Agreement also requires us to maintain a specified total net leverage ratio and minimum interest coverage ratio at the end of any fiscal quarter at any time the facility is drawn. Our ability to meet these ratios, if applicable, could be affected by events beyond our control. Failure to comply with any of the covenants under our Credit Agreement could result in a default under the facility, which could cause our lenders to accelerate the timing of payments and exercise their lien on substantially all of our assets, which would have a material adverse effect on our business, operating results, and financial condition.

**Financial Reporting, Legal and Other Regulatory Risks** 

**Legal proceedings could materially impact our business, financial condition, results of operations and cash flows.** 

Our operations, which are characterized by a high volume of customer traffic and data collection 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, data security and privacy, accessibility and other legal actions in the ordinary course of our business, including litigation arising from the COVID-19 pandemic, food-related illness or product labeling. In addition, our team members may, from time to time, bring lawsuits against us regarding injury, hostile work environment, discrimination, wage and hour disputes, sexual harassment, or other employment issues. In recent years, there has been an increase in the number of discrimination and harassment claims across the United States generally. Additionally, we could be exposed to industry-wide or class-action claims arising from products we carry or industry-specific business or employment practices. 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 or perceptions of our business and impact our ability to hire and retain team members, 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, results of operations and cash flows.

**We, as well as our vendors, are subject to numerous laws and regulations and our compliance with these laws and regulations may increase our costs, limit or eliminate our ability to sell certain products, raise regulatory enforcement risks, or otherwise adversely affect our business, reputation, results of operations, cash flows and financial condition.** 

Enforcement. Both FDA and USDA have broad authority to enforce their applicable provisions relating to the safety, labeling, manufacturing, distribution and promotion of foods, cosmetics, homeopathic and CBD products, and dietary supplements, including powers to issue a public warning letter to a company, publicize information about adulterated or misbranded products, institute an administrative detention of products, request or order a recall of food from the market, impose import restrictions and request the Department of Justice to initiate a seizure action, an injunction action or a criminal prosecution.

Dietary Supplement, CBD and Homeopathic Product Risks. Our sales of dietary supplements are regulated by FDA. However, other public and private actors are increasingly targeting dietary supplement

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retailers and manufacturers for selling products that fail to adhere to requirements under FDCA, as amended by DSHEA. While the FDCA provides FDA with the authority to remove products from the market that are adulterated or misbranded, state actors, and the Plaintiffs' Bar have been targeting retailers and manufacturers of dietary supplements for failing to adhere to current good manufacturing practices and for false or misleading product statements. As a retailer of certain topical or ingestible CBD products, the FDA also has the authority to remove from the market any CBD product if it is adulterated, its labeling is false or misleading, it is otherwise misbranded, or if it violates any other FDCA or FDA requirement or regulation. This enforcement authority extends to states that have legalized and regulated the distribution of CBD products. States in which we operate have also imposed restrictions or permitting requirements for the sale of various CBD products. The FDCA also provides FDA with the authority to remove homeopathic products from the market that are adulterated or misbranded or contain improper or excessive amounts of active ingredients. Further marketing homeopathic and CBD products with misbranding, misleading claims or quality issues have also been targets for litigation.

Advertising and Product Claims Risks. In connection with the marketing and advertisement of products we sell, we could be the target of claims relating to false or deceptive advertising, including under the oversight of the FTC and pursuant to the consumer protection statutes of some states. Furthermore, in recent years, the FDA has been aggressive in enforcing its regulations with respect to nutrient content claims (e.g., "low fat," "good source of," "calorie free," etc.), unauthorized "health claims" (claims that characterize the relationship between a food or food ingredient and a disease or health condition), and other claims that impermissibly suggest therapeutic benefits for certain foods or food components. These events could interrupt the marketing and sales of products in our stores, including our private label products, severely damage our brand reputation and public image, increase the cost of products in our stores, result in product recalls or costly litigation, and impede our ability to deliver merchandise in sufficient quantities or quality to our stores, which could result in a material adverse effect on our business, financial condition, results of operations and cash flows.

Our reputation could also suffer from real or perceived issues involving the labeling or marketing of products we sell as "natural." Although the FDA and the USDA have each issued statements regarding the appropriate use of the word "natural," there is no single, U.S. government-regulated definition of the term "natural" for use in the food industry. The resulting uncertainty has led to consumer confusion, distrust and legal challenges. Plaintiffs have commenced legal actions against a number of food companies and retailers that market "natural" or similarly labeled products, asserting false, misleading and deceptive advertising and labeling claims, including claims related to genetically modified ingredients. Should we become subject to similar claims, consumers may avoid purchasing products from us or seek alternatives, even if the basis for the claim is unfounded. Adverse publicity about these matters may discourage consumers from buying our products. The cost of defending against any such claims could be significant. Any loss of confidence on the part of consumers in the truthfulness of our labeling or ingredient claims would be difficult and costly to overcome and may significantly reduce our brand value. Any of these events could adversely affect our reputation and brand and decrease our sales, which would have a material adverse effect on our business, financial condition, results of operations and cash flows.

Organic and GMO Claims. We are also subject to the USDA's Organic Rule, which facilitates interstate commerce and the marketing of organically produced food, and provides assurance to our customers that such products meet consistent, uniform standards. Compliance with the USDA's Organic Rule also places a significant burden on some of our suppliers, which may cause a disruption in some of our product offerings. Additionally, the USDA has promulgated regulations that require disclosure of whether food offered for sale contains bioengineered (GMO) ingredients. Implementation began in January 2022.

FSMA Implementation Costs. FSMA directed an historic shift at FDA from the agency reacting to and solving problems in the food supply chain to preventing contamination of food before it occurs. FSMA accomplished this goal by overhauling FDA's current food safety program to require all actors in the food supply chain to expand their safety programs and record keeping processes. FSMA's continued implementation, such as the rule on Additional Traceability Records for Certain Foods established in its Section 204(d) and finalized November 15, 2022, and FDA's own development in understanding effective ways to enforce FSMA provisions could delay the supply of certain products, result in certain products being unavailable to us for sale, see an increase in price of certain products, and/or increase the expenditure of company resources to ensure compliance (e.g., technology, consultants, employees, etc.).

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Ecommerce Platform and Third-Party Risks. Our online order ecommerce platform is subject to the same laws and regulations as our retail operations. Product statements made on our website must be in accordance with labeling requirements. As is common in our industry, we rely on our suppliers and contract manufacturers to ensure that the products they manufacture and sell to us comply with all applicable regulatory and legal requirements. In general, we seek representations and warranties, indemnification and/or insurance from our suppliers and contract manufacturers. However, even with adequate insurance and indemnification, any claims of non-compliance could significantly damage our reputation and consumer confidence in products we sell. In addition, the failure of such products to comply with applicable regulatory and legislative requirements could prevent us from marketing the products or require us to recall or remove such products from our stores. In order to comply with applicable statutes and regulations, our suppliers and contract manufacturers have from time to time reformulated, eliminated or relabeled certain of their products and we have revised certain provisions of our sales and marketing program.

**We are also subject to laws and regulations more generally applicable to retailers. Compliance with or changes to such laws and regulations may increase our costs, limit or eliminate our ability to sell certain products or otherwise adversely affect our business, reputation, results of operations, financial condition or cash flows.** 

We are subject to laws and regulations more generally applicable to retailers, including those related to labor and employment, taxation, zoning and land use, environmental protection, workplace safety, public health, community right-to-know, data privacy, hazardous waste disposal, consumer protection and alcoholic beverage sales. Due to the COVID-19 pandemic, we are subject to additional governmental regulations and health guidelines, as well as other voluntary safety protocols. Our stores are subject to unscheduled inspections on a regular basis, which, if violations are found, could result in the assessment of fines, suspension of one or more needed licenses and, in the case of repeated "critical" violations, closure of the store until a re-inspection demonstrates that we have remediated the problem. Further, our new store openings could be delayed or prevented, or our existing stores could be impacted by difficulties or failures in our ability to obtain or maintain required permits, approvals or licenses. In addition, we are subject to environmental laws pursuant to which we could be held responsible for all of the costs or liabilities relating to any contamination at our or our predecessors' past or present facilities and at third-party waste disposal sites, regardless of our knowledge of, or responsibility for, such contamination, and such costs may exceed our environmental liability insurance coverage.

As is common in our industry, we rely on our suppliers and contract manufacturers to ensure that the products they manufacture and sell to us comply with all applicable regulatory and legislative requirements. In general, we seek representations and warranties, indemnification and/or insurance from our suppliers and contract manufacturers. However, even with adequate insurance and indemnification, any claims of non-compliance could significantly damage our reputation and consumer confidence in our products. In order to comply with applicable statutes and regulations, our suppliers and contract manufacturers have from time to time reformulated, eliminated or relabeled certain of their products and we have revised certain provisions of our sales and marketing program.

We cannot predict the nature of future laws, regulations, interpretations or applications, or determine what effect either additional government regulations or executive or administrative orders, when and if promulgated, or disparate federal, state and local regulatory schemes would have on our business in the future. They could, however, increase our costs; result in our unintended misinterpretation or noncompliance; expose us to litigation, enforcement actions and fines; require the reformulation of certain products or alternative sourcing from domestic suppliers or otherwise to meet new standards, regulations or trade restrictions; require the recall or discontinuance of certain products not able to be reformulated or alternatively sourced in compliance with new regulations or restrictions; impose additional recordkeeping; expand documentation of the properties of certain products; necessitate expanded or different labeling and/or scientific substantiation; or require us to discontinue certain operations. Any or all of such requirements could have a material adverse effect on our business, financial condition, results of operations and cash flows.

**We may be unable to adequately protect our intellectual property rights, which could harm our business.** 

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We rely on a combination of trademark, trade secret, copyright and domain name law and internal procedures and nondisclosure agreements to protect our intellectual property. In particular, we believe our trademarks, including SPROUTS FARMERS MARKET<sup>®</sup> and SPROUTS<sup>®</sup>, and our domain names, including sprouts.com, are valuable assets. However, there can be no assurance that our intellectual property rights will be sufficient to distinguish our products and services from those of our competitors and to provide us with a competitive advantage. From time to time, third parties may use names and logos similar to ours, may apply to register trademarks or domain names similar to ours, and may infringe or otherwise violate our intellectual property rights. There can be no assurance that our intellectual property rights can be successfully asserted against such third parties or will not be invalidated, circumvented or challenged. Asserting or defending our intellectual property rights could be time consuming and costly and could distract management's attention and resources. If we are unable to prevent our competitors from using names, logos and domain names similar to ours, consumer confusion could result, the perception of our brand and products could be negatively affected, and our sales and profitability could suffer as a result. We also license the SPROUTS FARMERS MARKETS trademark to a third party for use in operating two grocery stores. If the licensee fails to maintain the quality of the goods and services used in connection with this trademark, our rights to, and the value of, this and similar trademarks could potentially be harmed. Negative publicity relating to the licensee could also be incorrectly associated with us, which could harm the business. Failure to protect our proprietary information could also have a material adverse effect on our business.

We may also be subject to claims that our intellectual property, activities or the products we sell infringe, misappropriate or otherwise violate the intellectual property rights of others. Any such claims can be 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 leases, inventories, goodwill and intangible assets, store closures, insurance, income taxes, share-based compensation and accounting for mergers and acquisitions and other special items, are complex and involve subjective judgments. Changes in these rules or their interpretation may necessitate changes to our financial statement presentation and 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.

**If we are unable to maintain effective internal control over financial reporting in the future, we may fail to prevent or detect material misstatements in our financial statements, in which case investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may decline.** 

As a public company, we are required to maintain internal control over financial reporting. If we are unable to maintain effective internal control over financial reporting, if we identify any material weaknesses therein, if we are unsuccessful in our efforts to remediate any such material weakness, if our management is unable to report that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected. In addition, we could become subject to investigations by the NASDAQ Stock Market, the SEC, or other regulatory authorities, which could require additional financial and management resources.

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**If our goodwill or other intangible assets become impaired, we may be required to record a significant charge to earnings.** 

We have a significant amount of goodwill and other intangible assets. As of January 1, 2023, we had goodwill and intangible assets of approximately $368.9 million and $185.0 million, respectively, which represented approximately 12% and 6% of our total assets as of such date, respectively. Goodwill is reviewed for impairment on an annual basis in the fourth fiscal quarter or whenever events occur or circumstances change that would more likely than not reduce the fair value of our reporting unit below its carrying amount. Fair value is determined based on the discounted cash flows and the market value of our single reporting unit. If the fair value of the reporting unit is less than its carrying value, an immediate charge to earnings would be recorded for the amount by which the reporting unit's carrying amount exceeds its fair value, not to exceed the carrying amount of the goodwill, which would adversely affect our operating results.

**Our nutrition-oriented educational activities may be impacted by government regulation or our inability to secure adequate liability insurance.** 

We provide nutrition-oriented information to our customers, and these activities may be subject to state and federal regulation and oversight by professional organizations. In the past, the FDA has expressed concerns regarding summarized health and nutrition-related information that it (i) does not, in the FDA's view, accurately present such information, (ii) diverts a consumer's attention and focus from FDA-required nutrition labeling and information or (iii) impermissibly promotes drug-type disease-related benefits. If our team members or third parties we engage to provide this information do not act in accordance with regulatory requirements, we may become subject to penalties or litigation that could have a material adverse effect on our business.

**Our business and reputation may be adversely impacted by evolving environmental, social and governance matters.**

Increasingly, investors, customers, government agencies, non-governmental organizations, team members, communities and other stakeholders are focusing on environmental, social and governance (ESG) matters and related disclosures. Many of these stakeholders evaluate and measure the performance of companies based on a variety of ESG metrics. As a fresh, natural and organic specialty retailer, we believe that many stakeholders hold us to higher standards with respect to ESG matters. As a result, we disclose certain ESG-related metrics, initiatives and goals in our SEC filings and other public disclosures. Execution against these ESG initiatives may be costly, and we may be unable to achieve our goals due to factors outside of our control. If our ESG-related reporting is incomplete or inaccurate or fails to comply with regulatory requirements, or if we fail to achieve significant progress with respect to our ESG goals on a timely basis, or at all, our business, financial performance, growth and reputation with our investors, customers and other stakeholders could be adversely affected.

**Common Stock Ownership Risks**

**Our stock price may be volatile, and you may not be able to resell your shares at or above the price you paid for them or at all.** 

There is no guarantee that our common stock will appreciate in value or even maintain the price at which our stockholders have purchased their shares. The trading price of our common stock may be volatile and subject to wide price fluctuations in response to various factors, many of which are beyond our control. Furthermore, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These and other factors may cause the market price and demand for our common stock to fluctuate substantially, which may limit or prevent investors from readily selling their shares of common stock and may otherwise negatively affect the price or liquidity of our common stock. In addition, in the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the company that issued the stock. If any of our stockholders were to bring a lawsuit against us, we could incur substantial costs defending the lawsuit or paying for settlements or damages. Such a lawsuit could also divert the time and attention of our management.

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**Anti-takeover provisions could impair a takeover attempt and adversely affect existing stockholders.** 

Certain provisions of our certificate of incorporation and bylaws and applicable provisions of Delaware law may have the effect of rendering more difficult, delaying, or preventing an acquisition of our company, even when this would be in the best interest of our stockholders. These include, without limitation, the following provisions:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•a classified board of directors (referred to as the "Board") whose members serve staggered three-year terms;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•"blank check" preferred stock, which could be issued by the board without stockholder approval and may contain voting, liquidation, dividend, and other rights superior to our common stock;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•inability of our stockholders to call special meetings of stockholders, which may delay the ability of our stockholders to force consideration of a proposal or the ability of holders controlling a majority of our capital stock to take action, including the removal of directors; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•required advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates for election to the board.

Any provision of our certificate of incorporation or bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.

**If securities or industry analysts cease publishing research or reports about us, our business, or our market, or if they adversely change their recommendations regarding our stock, our stock price and trading volume could decline.** 

The trading market for our common stock is influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors. If we do not maintain adequate research coverage, or if any of the analysts who may cover us downgrade our stock or publish inaccurate or unfavorable research about our business or provide relatively more favorable recommendations about our competitors, our stock price could decline. If any analyst who may cover us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

**Since we do not expect to pay any cash dividends in the near future, investors may be forced to sell their stock in order to obtain a return on their investment.** 

Although we regularly evaluate our capital structure and opportunities to create value for our investors, we do not anticipate declaring or paying in the near future any cash dividends on our capital stock. Instead, we plan to retain any earnings to finance our operations and growth plans. In addition, our Credit Agreement contains covenants that we must satisfy in order to pay cash dividends. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any return on their investment. As a result, investors seeking cash dividends should not purchase our common stock.

**Our business could be impacted as a result of actions by activist stockholders or others.**

We may be subject, from time to time, to legal and business challenges in the operation of our company due to actions instituted by activist shareholders or others. Responding to such actions, which may include private engagement, publicity campaigns, proxy contests, efforts to force transactions not supported by our board, and litigation, could be costly and time-consuming, may not align with our strategic plan and could divert the time and attention of our board and management from our business. Perceived uncertainties as to our future direction as a result of stockholder activism may lead to the perception of a change in the direction of the business or other instability and may affect our stock price, relationships with vendors, customers, prospective and current team members and others.

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**Item 1B. Unresolved Staff Comments** 

None.

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**Item 2. Properties** 

We seek to select sites for our store locations in markets with growth potential where our target customers and supply chain capabilities intersect. As of January 1, 2023, we had 386 stores located in 23 states, as shown in the chart below:

---

| | | | |
|:---|:---|:---|:---|
| **<u>State</u>** | **Number of Stores** | **<u>State</u>** | **Number of Stores** |
| Alabama | 3 | New Jersey | 1 |
| Arizona | 44 | New Mexico | 9 |
| California | 130 | North Carolina | 5 |
| Colorado | 32 | Oklahoma | 11 |
| Delaware | 1 | Pennsylvania | 2 |
| Florida | 35 | South Carolina | 1 |
| Georgia | 18 | Tennessee | 6 |
| Kansas | 4 | Texas | 51 |
| Louisiana | 1 | Utah | 5 |
| Maryland | 5 | Virginia | 1 |
| Missouri | 3 | Washington | 4 |
| Nevada | 14 |  |  |

---

In fiscal 2022, we opened 16 new stores. In fiscal 2021, we opened 12 new stores.

We lease all of our stores from unaffiliated third parties. A typical store lease is for an initial 10 to 15 year term with three or four renewal options of five years each. We expect that we will be able to renegotiate these leases or relocate these stores as necessary. In addition to new store openings, we remodel or relocate stores periodically in order to improve performance. See "Business – New Store Development" for additional information with respect to our store site selection process.

As of January 1, 2023, we utilized seven distribution centers. Information about such facilities, as well as our current corporate office in Phoenix, Arizona, is set forth in the table below:

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| | | |
|:---|:---|:---|
| **<u>Facility</u>** | **State** | **Square Footage\*** |
| Corporate Office | Arizona | 96000 |
| Distribution Center | Arizona | 129000 |
| Distribution Center | California | 123000 |
| Distribution Center | California | 110000 |
| Distribution Center | Colorado | 134000 |
| Distribution Center | Florida | 134000 |
| Distribution Center | Georgia | 100000 |
| Distribution Center | Texas | 117000 |

---

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\* Rounded to the nearest 1,000 square feet

We lease our corporate office and our distribution centers in Arizona, Colorado, Florida and Texas from unaffiliated third parties; our remaining three distribution centers are leased or owned by our third-party logistics providers. We expect to expand our distribution center network to support our growth. See "Business – Sourcing and Distribution" for additional information with respect to our distribution centers.

We believe our portfolio of long-term leases is a valuable asset supporting our retail operations, but we do not believe that any individual store property or distribution center lease is material to our financial condition or results of operations.

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In February 2023 as part of our real estate portfolio review, we determined to close 11 stores during 2023. These stores, on average, are approximately 30% larger than our current prototype format and are underperforming financially. See Note 28, "Subsequent Events" to our Consolidated Financial Statements for additional information regarding these store closures.

**Item 3. Legal Proceedings** 

From time to time we are a party to legal proceedings, including matters involving personnel and employment issues, product liability, personal injury, intellectual property and other proceedings arising in the ordinary course of business, which have not resulted in any material losses to date. Although our management does not expect that the outcome in these proceedings will have a material adverse effect on our financial condition or results of operations, litigation is inherently unpredictable. Therefore, we could incur judgments or enter into settlements of claims that could materially impact our results.

See Note 19, "Commitments and Contingencies" to our Consolidated Financial Statements for information regarding certain legal proceedings in which we are involved.

**Item 4. Mine Safety Disclosures** 

Not applicable.

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**PART II** 

**Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities** 

**Market Information** 

Our common stock began trading on the NASDAQ Global Select Market under the symbol "SFM" on August 1, 2013. The number of stockholders of record of our common stock as of February 28, 2023 was 26. This number excludes stockholders whose stock is held in nominee or street name by brokers.

**Dividend Policy** 

Although we regularly evaluate our capital structure and opportunities to create value for our stockholders, since we became a publicly traded company on August 1, 2013, we have not declared or paid, and do not anticipate declaring or paying in the near future, any cash dividends on our capital stock. Any future determination as to the declaration and payment of dividends, if any, will be at the discretion of our board of directors and will depend on then existing conditions, including our operating results, financial condition, contractual restrictions, capital requirements, business prospects, and other factors our board of directors may deem relevant. Our Credit Agreement contains covenants that we must satisfy in order to pay cash dividends.

**Issuer Purchases of Equity Securities** 

The following table provides information about our share repurchase activity during the thirteen weeks ended January 1, 2023.

---

| | | | | |
|:---|:---|:---|:---|:---|
| **Period (1)** | **Total number<br>of shares<br>purchased** | **Average<br>price paid<br>per share** | **Total number<br>of shares purchased as<br>part of publicly<br>announced plans <br>or programs** | **Approximate<br>dollar value of shares that<br>may yet be<br>purchased under<br>the plans or<br>programs (2)** |
| October 3, 2022 - October 30, 2022 | 516534 | $27.61 | 516534 | $442504000 |
| October 31, 2022 - November 27, 2022 | 436669 | $31.01 | 436669 | $428964000 |
| November 28, 2022 - January 1, 2023 | 506825 | $33.71 | 506825 | $411877000 |
| Total | 1460028 |  | 1460028 |  |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)Periodic information is presented by reference to our fiscal periods during the fourth quarter of fiscal year 2022.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2)On March 2, 2022, our board of directors authorized a $600 million share repurchase program of our common stock. The shares may be purchased on a discretionary basis from time to time through December 31, 2023, subject to general business and market conditions and other investment opportunities, through open market purchases, privately negotiated transactions, or other means, including through Rule 10b5-1 trading plans.

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**Performance Graph**

The graph set forth below compares the cumulative total stockholder return on our common stock between December 31, 2017 and January 1, 2023, with the cumulative total return of (i) the NASDAQ Composite Index and (ii) the S&P Food Retail Index, over the same period.

The comparison assumes that $100.00 was invested in our common stock, the NASDAQ Composite Index and the S&P Food Retail Index, and assumes reinvestment of dividends, if any. The graph assumes the initial value of our common stock on December 29, 2017 (the last trading day prior to the beginning of fiscal 2018) was the closing sale price on that day of $24.35 per share. The performance shown on the graph below is based on historical results and is not intended to suggest future performance.

![img144088372_3.jpg](img144088372_3.jpg)

This performance graph shall not be deemed "soliciting material" or to be "filed" with the SEC for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities under that section, and shall not be deemed to be incorporated by reference into any filing of Sprouts Farmers Market, Inc. under the Securities Act or the Exchange Act.

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**Item 6. [Reserved]**

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**Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations** 

You should read the following discussion and analysis of our financial condition and results of operations together with the consolidated financial statements and related notes that are included elsewhere in this Annual Report on Form 10-K as well as "Part II—Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K for the fiscal year ended January 2, 2022 filed with the SEC on February 24, 2022, which provides comparisons of fiscal 2021 and fiscal 2020, and which is incorporated by reference herein. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under "Risk Factors" or in other parts of this Annual Report on Form 10-K. Please also see the section entitled "Special Note Regarding Forward-Looking Statements."

**Business Overview**

Sprouts Farmers Market offers a unique grocery experience featuring an open layout with fresh produce at the heart of the store. Sprouts inspires wellness naturally with a carefully curated assortment of better-for-you products paired with purpose-driven people. We continue to bring the latest in wholesome, innovative products made with lifestyle-friendly ingredients such as organic, plant-based and gluten-free. Headquartered in Phoenix with 386 stores in 23 states as of January 1, 2023, we are one of the largest and fastest growing specialty retailers of fresh, natural and organic food in the United States.

**Our Heritage**

In 2002, we opened the first Sprouts Farmers Market store in Chandler, Arizona. From our founding in 2002 through January 1, 2023, we have grown rapidly, significantly increasing our sales, store count and profitability, including successfully rebranding 43 Henry's Farmers Market and 39 Sunflower Farmers Market stores added in 2011 and 2012, respectively, to the Sprouts banner through acquisitions. These three businesses all trace their lineage back to Henry's Farmers Market and were built with similar store formats and operations including a strong emphasis on value, produce and service in smaller, convenient locations.

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**Outlook**

Since 2020, we have focused on our long-term growth strategy that we believe is transforming our company and driving profitable growth. We continue to execute on this strategy, focusing on the following areas:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Win with Target Customers. We are focusing attention on our target customers, identified through research as 'health enthusiasts' and 'selective shoppers', where there is ample opportunity to gain share within these customer segments. We believe our business can continue to grow by leveraging existing strengths in a unique assortment of better-for-you, quality products and by providing a full omnichannel offering through delivery or pickup via our website or the Sprouts app.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Update Format and Expand in Select Markets. We are delivering unique smaller stores with expectations of stronger returns, while maintaining the approachable, fresh-focused farmer's market heritage Sprouts is known for. In 2021, we opened three stores and remodeled one store featuring our new format, and in 2022, we opened nine new format stores. Our geographic store expansion and new store placement will intersect where our target customers live, in markets with growth potential and supply chain support, which we believe will provide a long runway of at least 10% annual unit growth beginning in 2024.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Create an Advantaged Fresh Supply Chain. We believe our network of fresh distribution centers can drive efficiencies across the chain and support growth plans. To further deliver on our fresh commitment and reputation, as well as to increase our local offerings and improve financial results, we aspire to ultimately position fresh distribution centers within a 250-mile radius of stores. With the opening of two fresh distribution centers in 2021, we now have more than 85% of our stores within 250 miles of a distribution center.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Refine Brand and Marketing Approach. We believe we are elevating our national brand recognition and positioning by telling our unique brand story rooted in product innovation and differentiation. We are investing savings from largely removing our weekly promotional print ad into increasing engagement and personalization with our target customers through digital and social connections, driving additional sales growth and loyalty.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Inspire and Engage Our Talent to Create a Best Place to Work. Subsequent to the initial launch of our long-term growth strategy, we have added the focus area of inspiring and engaging our talent through our culture, acquisition and development and total rewards program to attract and retain the talent we believe we need to execute on our strategic goals and transform our company into a premier place to work.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Deliver on Financial Targets and Box Economics. We are measuring and reporting on the success of this strategy against a number of long-term financial and operational targets. With the implementation of our strategy beginning in 2020, we have significantly improved our margin structure above our 2019 baseline.

**Components of Operating Results**

We report our results of operations on a 52- or 53-week fiscal year ending on the Sunday closest to December 31, with each fiscal quarter generally divided into three periods consisting of two four-week periods and one five-week period. Fiscal 2022 and fiscal 2021 were 52-week years ending on January 1, 2023 and January 2, 2022, respectively. Fiscal 2020 was a 53-week year ending on January 3, 2021.

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**Net Sales** 

We recognize sales revenue at the point of sale, with discounts provided to customers reflected as a reduction in sales revenue. Proceeds from sales of gift cards are recorded as a liability at the time of sale and recognized as sales when they are redeemed by the customer. See Note 3, "Significant Accounting Policies" for additional information on revenue recognition related to gift cards. We do not include sales taxes in net sales.

We monitor our comparable store sales growth to evaluate and identify trends in our sales performance. Our practice is to include sales from a store in comparable store sales beginning on the first day of the 61st week following the store's opening and to exclude sales from a closed store from comparable store sales on the day of closure. This practice may differ from the methods that other retailers use to calculate similar measures.

Historically, our net sales have increased as a result of new store openings and comparable store sales growth. Additional factors that influence comparable store sales growth and other sales trends include:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•general economic conditions and trends, including levels of disposable income and consumer confidence;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•our competition, including competitive store openings in the vicinity of our stores and competitor pricing and merchandising strategies;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•consumer preferences and buying trends;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•our ability to identify market trends, and to source and provide product offerings that promote customer traffic and growth in average ticket;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the number of customer transactions and average ticket;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the prices of our products, including the effects of factors beyond our control, such as inflation, deflation and tariffs;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•opening new stores in the vicinity of our existing stores; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•advertising, in-store merchandising and other marketing activities.

**Cost of sales and gross profit** 

Cost of sales includes the cost of inventory sold during the period, including direct costs of purchased merchandise (net of discounts and allowances), distribution and supply chain costs, and depreciation and amortization expense for distribution centers and supply chain-related assets. Merchandise incentives received from vendors, which are reflected in the carrying value of inventory when earned or as progress is made toward earning the rebate or allowance, and are reflected as a component of cost of sales as the inventory is sold. Inflation and deflation in the prices of food and other products we sell may periodically affect our gross profit and gross margin. The short-term impact of inflation and deflation is largely dependent on whether or not we pass the effects through to our customers, which will largely depend upon competitive market conditions.

Our cost of sales and gross profit are correlated to sales volumes. As sales increase, gross margin is affected by the relative mix of products sold, pricing and promotional strategies, inventory shrinkage and leverage of fixed costs of sales.

**Selling, general and administrative expenses** 

Selling, general and administrative expenses primarily consist of salaries, wages and benefits costs, share-based compensation, store occupancy costs (including rent, property taxes, utilities, common area maintenance and insurance), advertising costs, buying costs, pre-opening and other administrative costs.

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**Depreciation and Amortization**

Depreciation and amortization (exclusive of depreciation included in cost of sales) primarily consists of depreciation and amortization for buildings, store leasehold improvements, and equipment.

**Store closure and other costs, net** 

Store closure and other costs, net primarily reflects impairment charges of long-lived assets and costs incurred related to store closures, including severance and any exit costs associated with closing a store, in addition to occupancy costs associated with closed store locations. One-time disaster recovery and executive severance costs are also included here.

**Results of Operations for Fiscal 2022, 2021 and 2020**

The following tables set forth our results of operations and other operating data for the periods presented. The period-to-period comparison of financial results is not necessarily indicative of financial results to be achieved in future periods. Fiscal 2022 and 2021 consisted of 52 weeks, while Fiscal 2020 consisted of 53 weeks.

---

| | | | |
|:---|:---|:---|:---|
|  | **Fiscal 2022** | **Fiscal 2021** | **Fiscal 2020** |
|  | **(in thousands, except per share data)** | **(in thousands, except per share data)** | **(in thousands, except per share data)** |
| **Consolidated Statement of Income Data:** |  |  |  |
| Net sales | $6404223 | $6099869 | $6468759 |
| Cost of sales | 4055659 | 3890657 | 4089470 |
| &nbsp;&nbsp;&nbsp;&nbsp;Gross profit | 2348564 | 2209212 | 2379289 |
| Selling, general and administrative<br> expenses | 1855649 | 1748205 | 1863869 |
| Depreciation and amortization (exclusive<br> of depreciation included in cost of sales) | 123530 | 122258 | 124124 |
| Store closure and other costs, net | 11025 | 4673 | (369) |
| &nbsp;&nbsp;&nbsp;&nbsp;Income from operations | 358360 | 334076 | 391665 |
| Interest expense, net | 9047 | 11684 | 14787 |
| &nbsp;&nbsp;&nbsp;&nbsp;Income before income taxes | 349313 | 322392 | 376878 |
| Income tax provision | 88149 | 78235 | 89428 |
| &nbsp;&nbsp;&nbsp;&nbsp;Net income | $261164 | $244157 | $287450 |
| &nbsp;&nbsp;&nbsp;&nbsp;Weighted average shares outstanding - basic | 108232 | 115377 | 117821 |
| &nbsp;&nbsp;&nbsp;&nbsp;Dilutive effect of equity-based awards | 907 | 700 | 403 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Weighted average shares and equivalent shares outstanding - diluted | 109139 | 116077 | 118224 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Diluted net income per share | $2.39 | $2.10 | $2.43 |

---

---

| | | | |
|:---|:---|:---|:---|
|  | **Fiscal 2022** | **Fiscal 2021** | **Fiscal 2020** |
| **Other Operating Data:** |  |  |  |
| Comparable store sales growth | 2.2% | (6.7)% | 6.9% |
| Stores at beginning of period | 374 | 362 | 340 |
| &nbsp;&nbsp;&nbsp;&nbsp;Opened (1) | 16 | 12 | 22 |
| &nbsp;&nbsp;&nbsp;&nbsp;Closed | (4) |  |  |
| Stores at end of period | 386 | 374 | 362 |
| Selling square feet at the end of the period | 10894396 | 10625686 | 10344669 |
| Average store size at the end of the period (selling square feet) | 28224 | 28411 | 28576 |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)Stores opened is exclusive of one store relocation during fiscal 2021.

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**Comparison of Fiscal 2022 to 2021**

**Net sales** 

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Fiscal 2022** | **Fiscal 2021** | **Change** | **% Change** |
|  | **(dollars in thousands)** | **(dollars in thousands)** | **(dollars in thousands)** | **(dollars in thousands)** |
| Net sales | $6404223 | $6099869 | $304354 | 5% |
| Comparable store sales growth | 2.2% | (6.7)% |  |  |

---

Net sales during 2022 totaled $6.4 billion, increasing 5%, over the prior fiscal year. The sales increase was primarily due to a 2.2% increase in comparable store sales as well as sales from new stores opened since the prior year. The increase in comparable store sales was due in part to an increase in basket value due to retail price inflation, partially offset by a slight reduction in the number of items per basket. Comparable store sales contributed approximately 97% of total sales for both 2022 and 2021.

**Cost of sales and gross profit** 

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Fiscal 2022** | **Fiscal 2021** | **Change** | **% Change** |
|  | **(dollars in thousands)** | **(dollars in thousands)** | **(dollars in thousands)** | **(dollars in thousands)** |
| Net sales | $6404223 | $6099869 | $304354 | 5% |
| Cost of sales | 4055659 | 3890657 | 165002 | 4% |
| Gross profit | 2348564 | 2209212 | 139352 | 6% |
| Gross margin | 36.7% | 36.2% | 0.5% |  |

---

Gross profit increased during 2022 compared to 2021 by $139.4 million to $2.3 billion driven by increased sales volume for the reasons discussed above. Gross margin increased by 0.5% to 36.7% compared to 36.2%. The increase was a result of strategic initiatives to improve shrink, less promotional activity and better management of prices in line with inflationary product cost increases.

**Selling, general and administrative expenses** 

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Fiscal 2022** | **Fiscal 2021** | **Change** | **% Change** |
|  | **(dollars in thousands)** | **(dollars in thousands)** | **(dollars in thousands)** | **(dollars in thousands)** |
| Selling, general and administrative expenses | $1855649 | $1748205 | $107444 | 6% |
| Percentage of net sales | 29.0% | 28.7% | 0.3% |  |

---

Selling, general and administrative expenses increased $107.4 million, or 6%, compared to 2021 due to the net increase in new stores opened since the prior year as well as inflationary conditions driving increases in store costs including wages, utilities and supplies. In addition, we experienced the effects of higher credit card fees as more consumers shifted to credit compared to the prior year and higher ecommerce costs resulting from an increase in ecommerce sales compared to the prior year.

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**Depreciation and amortization**

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Fiscal 2022** | **Fiscal 2021** | **Change** | **% Change** |
|  | **(dollars in thousands)** | **(dollars in thousands)** | **(dollars in thousands)** | **(dollars in thousands)** |
| Depreciation and amortization | $123530 | $122258 | $1272 | 1% |
| Percentage of net sales | 1.9% | 2.0% | (0.1)% |  |

---

Depreciation and amortization expense (exclusive of depreciation included in cost of sales) was $123.5 million in 2022, compared to $122.3 million in 2021. Depreciation and amortization expenses (exclusive of depreciation included in cost of sales) primarily consists of depreciation and amortization for buildings, store leasehold improvements, and equipment for new stores as well as remodel initiatives in older stores.

**Store closure and other costs, net** 

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Fiscal 2022** | **Fiscal 2021** | **Change** | **% Change** |
|  | **(dollars in thousands)** | **(dollars in thousands)** | **(dollars in thousands)** | **(dollars in thousands)** |
| Store closure and other costs, net | $11025 | $4673 | $6352 | 136% |
| Percentage of net sales | 0.2% | 0.1% | 0.1% |  |

---

Store closure and other costs, net in 2022 of $11.0 million primarily consisted of $8.1 million of impairment losses related to the write-down of leasehold improvements and right-of-use assets, in addition to inventory loss and expenses incurred by several of our stores impacted by Hurricane Ian and costs associated with the closing of four stores. Store closure and other costs, net in 2021 of $4.7 million primarily included $4.8 million of impairment losses related to the write-down of leasehold improvements and right-of-use assets.

**Interest expense, net** 

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Fiscal 2022** | **Fiscal 2021** | **Change** | **% Change** |
|  | **(dollars in thousands)** | **(dollars in thousands)** | **(dollars in thousands)** | **(dollars in thousands)** |
| Long-term debt | $7930 | $4601 | $3329 | 72% |
| Capital and financing leases | 852 | 906 | (54) | (6)% |
| Deferred financing costs | 800 | 564 | 236 | 42% |
| Interest rate hedge and other | (535) | 5613 | (6148) | (110)% |
| Total interest expense, net | $9047 | $11684 | $(2637) | (23)% |

---

The decrease in interest expense, net was primarily due to higher interest income and lower credit facility fees. See Note 13, "Long-Term Debt and Finance Lease Liabilities" and Note 22, "Derivative Financial Instruments."

**Income tax provision** 

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Fiscal 2022** | **Fiscal 2021** | **Change** | **% Change** |
|  | **(dollars in thousands)** | **(dollars in thousands)** | **(dollars in thousands)** | **(dollars in thousands)** |
| Income tax provision | $88149 | $78235 | $9914 | 13% |
| Effective income tax rate | 25.2% | 24.3% | 0.9% |  |

---

Income tax provision increased by $9.9 million to $88.1 million for 2022 from $78.2 million for 2021, primarily related to an increase in income before income taxes. The effective income tax rate increased to 25.2% in 2022 from 24.3% in 2021 primarily due to decreased charitable contribution deductions in 2022 from the lapsing of benefits initially provided for in the Coronavirus Aid, Relief, and Economic Security Act of 2020 (the "CARES Act").

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**Net income** 

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Fiscal 2022** | **Fiscal 2021** | **Change** | **% Change** |
|  | **(dollars in thousands)** | **(dollars in thousands)** | **(dollars in thousands)** | **(dollars in thousands)** |
| Net income | $261164 | $244157 | $17007 | 7% |
| Percentage of net sales | 4.1% | 4.0% | 0.1% |  |

---

Net income increased $17.0 million primarily due to increased net sales and favorable margin impact, partially offset by higher selling, general and administrative expenses and a higher effective tax rate for the reasons discussed above.

**Diluted earnings per share**

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Fiscal 2022** | **Fiscal 2021** | **Change** | **% Change** |
|  | **(shares in thousands)** | **(shares in thousands)** | **(shares in thousands)** | **(shares in thousands)** |
| Diluted earnings per share | $2.39 | $2.10 | $0.29 | 14% |
| Diluted weighted average shares outstanding | 109139 | 116077 | (6938) |  |

---

The increase in diluted earnings per share of $0.29 was driven by higher net income, in addition to fewer diluted shares outstanding compared to the prior year, due to our repurchase of approximately 6.9 million shares for a total cost of $200.0 million under our share repurchase program.

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**Return on Invested Capital**

In addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, we provide information regarding Return on Invested Capital ("ROIC") as additional information about our operating results. ROIC is a non-GAAP financial measure and should not be reviewed in isolation or considered as a substitute for our financial results as reported in accordance with GAAP. ROIC is an important measure used by management to evaluate our investment returns on capital and provides a meaningful measure of the effectiveness of our capital allocation over time.

We define ROIC as net operating profit after-tax ("NOPAT"), including the effect of operating leases, divided by average invested capital. Operating lease interest represents the add-back to operating income driven by the hypothetical interest expense we would incur if the property under our operating leases were owned or accounted for as a finance lease. The assumed ownership and associated interest expense are calculated using the discount rate for each lease as recorded as a component of rent expense within selling, general and administrative expenses. Invested capital reflects a trailing four-quarter average.

As numerous methods exist for calculating ROIC, our method may differ from methods used by other companies to calculate their ROIC. It is important to understand the methods and the differences in those methods used by other companies to calculate their ROIC before comparing our ROIC to that of other companies.

Our calculation of ROIC for the fiscal years indicated was as follows:

---

| | | | |
|:---|:---|:---|:---|
|  | **2022** | **2021** | **2020(1)** |
|  | **(dollars in thousands)** | **(dollars in thousands)** | **(dollars in thousands)** |
| Net income (2) | $261164 | $244157 | $287450 |
| Special items, net of tax (3), (4) |  |  | 6565 |
| Interest expense, net of tax (4) | 6764 | 8848 | 11272 |
| &nbsp;&nbsp;&nbsp;&nbsp;Net operating profit after-tax (NOPAT) | $267928 | $253005 | $305287 |
| Total rent expense, net of tax (4) | 154626 | 150047 | 146630 |
| Estimated depreciation on operating leases, net of tax (4) | (87775) | (88015) | (80944) |
| Estimated interest on operating leases, net of tax (4), (5) | 66851 | 62032 | 65686 |
| &nbsp;&nbsp;&nbsp;&nbsp;NOPAT, including effect of operating leases | $334779 | $315037 | $370973 |
| Average working capital | 271604 | 193900 | 101622 |
| Average property and equipment | 704786 | 712496 | 735651 |
| Average other assets | 568609 | 568744 | 567188 |
| Average other liabilities | (96583) | (101339) | (100531) |
| &nbsp;&nbsp;&nbsp;&nbsp;Average invested capital | $1448416 | $1373801 | $1303930 |
| Average operating leases (6) | 1259362 | 1222513 | 1196822 |
| &nbsp;&nbsp;&nbsp;&nbsp;Average invested capital, including operating leases | $2707778 | $2596314 | $2500752 |
| &nbsp;&nbsp;&nbsp;&nbsp;ROIC, including operating leases | 12.4% | 12.1% | 14.8% |

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(1)Fiscal 2020 includes 53 weeks.

(2)Net income amounts represent total net income for the past four trailing quarters.

(3)2020 special items include professional fees related to our strategic initiatives.

(4)Net of tax amounts are calculated using the normalized effective tax rate for the periods presented.

(5)2022, 2021 and 2020 estimated interest on operating leases is calculated by multiplying operating leases by the 7.1%, 6.7% and 7.2% discount rate, respectively, for each lease recorded as rent expense within direct store expense.

(6)2022, 2021 and 2020 average operating leases represents the average net present value of outstanding lease obligations over the trailing four quarters.

**Liquidity and Capital Resources** 

The following table sets forth the major sources and uses of cash for each of the periods set forth below, as well as our cash, cash equivalents and restricted cash at the end of each period (in thousands):

---

| | | | |
|:---|:---|:---|:---|
|  | **Fiscal 2022** | **Fiscal 2021** | **Fiscal 2020** |
| Cash, cash equivalents and restricted cash at<br> end of period | $295192 | $247004 | $171441 |
| Cash from operating activities | $371329 | $364799 | $494035 |
| Cash used in investing activities | $(124010) | $(102378) | $(121968) |
| Cash used in financing activities | $(199131) | $(186858) | $(287411) |

---

We have generally financed our operations principally through cash generated from operations and borrowings under our credit facilities. Our primary uses of cash are for purchases of inventory, operating expenses, capital expenditures primarily for opening new stores, remodels and maintenance, repurchases of our common stock and debt service. Our principal contractual obligations and commitments consist of obligations under our Credit Agreement, interest on our Credit Agreement, operating and finance leases, purchase commitments and self-insurance liabilities. We believe that our existing cash, cash equivalents and restricted cash, and cash anticipated to be generated from operations will be sufficient to meet our anticipated cash needs for at least the next 12 months. Our future capital requirements will depend on many factors, including new store openings, remodel and maintenance capital expenditures at existing stores, store initiatives and other corporate capital expenditures and activities. Our cash, cash equivalents and restricted cash position benefits from the fact that we generally collect cash from sales to customers the same day or, in the case of credit or debit card transactions, within days from the related sale.

**Operating Activities** 

Cash flows from operating activities increased $6.5 million to $371.3 million in 2022 compared to $364.8 million in 2021. The increase in cash flows from operating activities was primarily a result of higher net income, partially offset by changes in working capital. The increase in net income was primarily due to increased net sales and favorable margin impact.

Cash flows used in operating activities from changes in working capital were $28.6 million in 2022, compared to $13.2 million in 2021. The increase was primarily driven by higher inventories impacted by inflationary cost increases on our purchases in the current year and higher prepaid expenses and other current assets primarily due to the timing of marketing spend, partially offset by the higher payout of COVID related incentive compensation amounts earned in 2020 and paid in 2021.

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**Investing Activities** 

Cash flows used in investing activities consist primarily of capital expenditures in new stores, including leasehold improvements and store equipment, capital expenditures to maintain the appearance of our stores, sales enhancing initiatives and other corporate investments. Cash flows used in investing activities were $124.0 million and $102.4 million for 2022 and 2021, respectively. The increase in cash flows used in investing activities was primarily due to more stores under construction in 2022 as compared to 2021.

We expect capital expenditures to be in the range of $210 - $230 million in 2023, net of estimated landlord tenant improvement allowances, primarily to fund investments in new stores, remodels, maintenance capital expenditures and corporate capital expenditures. We expect to fund our capital expenditures with cash on hand and cash generated from operating activities. We do not have any material contractual commitments for future capital expenditures as of January 1, 2023.

**Financing Activities** 

Cash flows used in financing activities were $199.1 million for 2022 compared to $186.9 million for 2021. During 2022, cash flows used in financing activities primarily consisted of approximately $200 million for share repurchases and $3.4 million in debt issuance costs in connection with our Credit Agreement, partially offset by $5.0 million in proceeds from the exercise of stock options. During 2021, cash flows used in financing activities primarily consisted of $188.3 million for share repurchases.

**Long-term Debt and Credit Facilities** 

Long-term debt outstanding was $250.0 million as of January 1, 2023 and January 2, 2022.

See Note 13, "Long-Term Debt and Finance Lease Liabilities" for a description of our Credit Agreement and our Former Credit Facility (as defined therein).

**Share Repurchase Program**

Our board of directors from time to time authorizes share repurchase programs for our common stock. The following table outlines the share repurchase programs authorized by our board, and the related repurchase activity and available authorization as of January 1, 2023.

---

| | | | | |
|:---|:---|:---|:---|:---|
| **Effective date** | **Expiration date** | **Amount<br>authorized** | **Cost of<br>repurchases** | **Authorization<br>available** |
| March 3, 2021 | March 2, 2022 | $300000 | $200200 | $— |
| March 2, 2022 | December 31, 2023 | $600000 | $188123 | $411877 |

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The shares under our current repurchase program may be purchased on a discretionary basis from time to time through the applicable expiration date, subject to general business and market conditions and other investment opportunities, through open market purchases, privately negotiated transactions, or other means, including through Rule 10b5-1 trading plans. Our board's authorization of the share repurchase program does not obligate us to acquire any particular amount of common stock, and the repurchase program may be commenced, suspended, or discontinued at any time.

Share repurchase activity under our repurchase programs for the periods indicated was as follows (total cost in thousands):

---

| | | |
|:---|:---|:---|
|  | **Year Ended** | **Year Ended** |
|  | **January 1, 2023** | **January 2, 2022** |
| Number of common shares acquired | 6897082 | 7416357 |
| Average price per common share acquired | $28.99 | $25.40 |
| Total cost of common shares acquired | $199980 | $188343 |

---

Shares purchased under our repurchase programs were subsequently retired and the excess of the repurchase price over par value was charged to retained earnings.

On August 16, 2022, the Inflation Reduction Act of 2022 ("IRA") was signed into law. Among other provisions, the IRA includes a 1% excise tax on stock repurchases made after December 31, 2022. The IRA is not expected to have a material impact on our consolidated financial statements.

Subsequent to January 1, 2023 and through February 28, 2023, we repurchased an additional 2.0 million shares of common stock for $64.0 million.

**Factors Affecting Liquidity**

We can currently borrow under our Credit Agreement, up to an initial aggregate commitment of $700.0 million, which may be increased from time to time pursuant to an expansion feature set forth in the Credit Agreement. We have previously utilized borrowings under our Credit Agreement to fund our share repurchase program as described above. The interest rate we pay on our borrowings increases as our net leverage ratio increases and may increase or decrease based upon the achievement of certain diversity and sustainability-linked metric thresholds.

The Credit Agreement contains financial, affirmative and negative covenants. The negative covenants include, among other things, limitations on our ability to:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•incur additional indebtedness;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•grant additional liens;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•enter into sale-leaseback transactions;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•make loans or investments;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•merge, consolidate or enter into acquisitions;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•pay dividends or distributions;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•enter into transactions with affiliates;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•enter into new lines of business;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•modify the terms of debt or other material agreements; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•change our fiscal year.

Each of these covenants is subject to customary and other agreed-upon exceptions.

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In addition, the Credit Agreement requires that we and our subsidiaries maintain a maximum total net leverage ratio not to exceed 3.75 to 1.00, which ratio may be increased from time to time in connection with certain permitted acquisitions pursuant to conditions as set forth in the Credit Agreement, and a minimum interest coverage ratio not to be less than 3.00 to 1.00. Each of these covenants is tested on the last day of each fiscal quarter, starting with the fiscal quarter ended April 3, 2022.

We were in compliance with all applicable covenants under the Credit Agreement as of January 1, 2023.

Our Credit Agreement is defined and more fully described in Note 13, "Long-Term Debt and Finance Lease Liabilities" of our audited consolidated financial statements contained elsewhere in this Annual Report on Form 10-K.

**Contractual Obligations**

Our principal contractual obligations and commitments consist of obligations under our Credit Agreement, interest on our Credit Agreement, operating and finance leases, purchase commitments and self-insurance liabilities. See Note 7, "Leases," Note 13, "Long-Term Debt and Finance Lease Liabilities," Note 15, "Self-Insurance Programs" and Note 19, "Commitments and Contingencies" to our consolidated financial statements located elsewhere in this Annual Report on Form 10-K for more information on the nature and timing of these obligations.

The future amount and timing of interest payments are expected to vary with the outstanding amounts and then prevailing contractual interest rates, net of interest rate swaps. Interest payments through the March 25, 2027 maturity date of our Credit Agreement based on the outstanding amounts as of January 1, 2023 and interest rates in effect at the time of this filing, are estimated to be approximately $52.5 million. These payments are estimated to be approximately $15.2 million in 2023 and approximately $37.3 million thereafter.

Real estate obligations, consisting of legally binding minimum lease payments for leases executed but not yet commenced, were $504.5 million as of January 1, 2023, including $7.2 million in 2023 and $497.3 million thereafter through 2044.

Our purchase commitments under noncancelable service and supply contracts that are enforceable and legally binding totaled $19.8 million as of January 1, 2023, including $9.8 million in 2023 and $10.0 million thereafter through 2027. Obligations under contracts that we can cancel without a significant penalty are not included in purchase commitments.

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.

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**Impact of Inflation and Deflation**

Inflation and deflation in the prices of food and other products we sell may periodically affect our sales, gross profit and gross margin. Food inflation, when combined with reduced consumer spending, could also reduce sales, gross profit margins and comparable store sales. Inflationary pressures on compensation, utilities, commodities, equipment and supplies may also impact our profitability. Food deflation across multiple categories, particularly in produce, could reduce sales growth and earnings if our competitors react by lowering their retail pricing and expanding their promotional activities, which can lead to retail deflation higher than cost deflation that could reduce our sales, gross profit margins and comparable store sales. 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, as well as our competitors' responses. Although we may experience periodic effects on sales, gross profit, gross margins and cash flows as a result of changing prices, including pressures we experienced in fiscal 2022 due to product cost inflation which we largely passed along to retail pricing, 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.

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**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. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. To the extent that there are material differences between these estimates and our actual results, our future financial statements will be affected.

We believe that of our significant accounting policies, which are described in Note 3, "Significant Accounting Policies" to the audited consolidated financial statements included in this Annual Report on Form 10-K, the following accounting policies involve the most difficult, complex or subjective judgments: inventories, lease assumptions, self-insurance reserves, goodwill and intangible assets, impairment of long-lived assets, and income taxes. Accordingly, we believe these are the most critical to fully understand and evaluate our financial condition and results of operations.

**Inventories** 

We value our inventory at the lower of cost or net realizable value. The significant estimate used in inventory valuation is the estimate of inventory shrinkage.

Shrink expense is accrued as a percentage of sales based on historical shrink trends. We perform physical inventories regularly, and our shrink accrual represents the loss estimate since the last physical inventory date through the reporting date. Actual physical inventory losses could vary significantly from our estimates due to changes in market conditions and other internal or external factors.

We believe that all inventories are saleable and no allowances or reserves for obsolescence were recorded as of January 1, 2023 and January 2, 2022.

**Lease Assumptions** 

The most significant estimates used by management in accounting for leases and the impact of those estimates are as follows:

Expected lease term—Our expected lease term includes both contractual lease periods and option periods that are determined to be reasonably certain. The expected lease term is used in determining whether the lease is accounted for as an operating lease or a finance lease. An increase in the expected lease term will increase the probability that a lease will be considered a finance lease and will generally result in higher interest and depreciation expense for a leased property recorded on our balance sheets.

Incremental borrowing rate—The incremental borrowing rate is primarily used in determining whether the lease is accounted for as an operating lease or a finance lease. An increase in the incremental borrowing rate decreases the net present value of the minimum lease payments and reduces the probability that a lease will be considered a finance lease. For finance leases, the incremental borrowing rate is also used in allocating our rental payments between interest expense and a reduction of the outstanding obligation.

Fair market value of the leased asset—The fair market value of leased retail property is generally estimated based on comparable market data provided by third-party sources and evaluated using the experience of our development staff. Fair market value is used in determining whether the lease is accounted for as an operating lease or a finance lease.

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**Self-Insurance Reserves**

We are self-insured for costs related to workers' compensation, general liability and employee health benefits up to certain self-insured retentions and stop-loss limits. As of January 1, 2023, the consolidated self-insurance reserve balance was $47.6 million, of which a majority of the balance related to workers' compensation and general liability reserves. Liabilities for self-insurance reserves are estimated based on independent actuarial estimates, which are based on historical information and assumptions about future events. We utilize various techniques, including analysis of historical trends and actuarial valuation methods, to estimate the cost to settle reported claims and claims incurred but not yet reported as of the balance sheet date. The actuarial valuation methods consider loss development factors, which include the development time frame and expected claim reporting and settlement patterns, and expected loss costs, which include the expected frequency and severity of claim activity. We believe our assumptions are reasonable, but the estimated reserves for these liabilities could be affected materially by future events or claims experiences that differ from historical trends and assumptions.

**Goodwill and Intangible Assets** 

Goodwill represents the cost of acquired businesses in excess of the fair value of assets and liabilities acquired. Our indefinite-lived intangible assets consist of trade names related to "Sprouts Farmers Market" and liquor licenses.

Goodwill and indefinite-lived intangible assets are evaluated for impairment on an annual basis during the fourth fiscal quarter, or more frequently if events or changes in circumstances indicate that the asset might be impaired. Our impairment evaluation of goodwill consists of a qualitative assessment to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If this qualitative assessment indicates it is more likely than not the estimated fair value of a reporting unit exceeds its carrying value, no further analysis is required, and goodwill is not impaired. Our qualitative assessment considers factors including changes in the competitive market, budget-to-actual performance, trends in market capitalization for us and our peers, turnover in key management personnel and overall changes in macroeconomic environment.

Our impairment evaluation for our indefinite-lived intangible assets consists of a qualitative assessment similar to that for goodwill. If our qualitative assessment indicates it is more likely than not that the estimated fair value of an indefinite-lived intangible asset exceeds its carrying value, no further analysis is required, and the asset is not impaired.

If our qualitative assessments indicate that it is more likely than not that the estimated fair value is less than carrying value, we compare the estimated fair value of the reporting unit or asset to its carrying amount with an impairment loss recognized for the amount, if any, by which carrying value exceeds estimated fair value. There are significant judgments and estimates in determining the estimated fair value of the reporting unit or asset; it is therefore possible that materially different amounts could be recorded if we used different assumptions or if the underlying circumstances were to change.

As of January 1, 2023, our consolidated goodwill balance was $368.9 million, and our consolidated indefinite-lived intangible assets balance was $185.0 million. No impairment of goodwill or indefinite-lived intangible assets was recorded during fiscal 2022, 2021 or 2020 because the fair value of those assets was substantially above carrying value.

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**Impairment of Long-Lived Assets**

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. This evaluation is performed at the lowest level of identifiable cash flows independent of other assets. An impairment loss would be recognized when estimated undiscounted future cash flows from the operation and/or disposition of the assets are less than their carrying amount. Measurement of an impairment loss would be based on the excess of the carrying amount of the asset group over its fair value. Fair value is measured using discounted cash flows or independent opinions of value, as appropriate. Our estimates of cash flows used to assess impairment involve significant judgment and are based upon assumptions on variables such as sales growth rate, gross margin, payroll and other controllable expenses. Application of alternative assumptions and definitions could produce significantly different results.

We recorded an impairment loss of $8.1 million and $4.8 million in 2022 and 2021, respectively, during the normal course of business. No impairment was recorded in 2020. See Note 3, "Significant Accounting Policies" and Note 6, "Property and Equipment".

**Income Taxes** 

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. We recognize the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. We record interest and penalties related to unrecognized tax benefits as part of income tax expense.

During the ordinary course of business, there are many transactions and calculations for which the ultimate tax settlement is uncertain. Under applicable accounting guidance, we are required to evaluate the realizability of our deferred tax assets. The realization of our deferred tax assets is dependent on future earnings. Applicable accounting guidance requires that a valuation allowance be recognized when, based on available evidence, it is more likely than not that all or a portion of deferred tax assets will not be realized due to the inability to generate sufficient taxable income in future periods. In circumstances where there is significant negative evidence, establishment of a valuation allowance must be considered. A pattern of sustained profitability is considered significant positive evidence when evaluating a decision to reverse a valuation allowance. Further, in those cases where a pattern of sustained profitability exists, projected future taxable income may also represent positive evidence, to the extent that such projections are determined to be reliable given the current economic environment. Accordingly, our assessment of our valuation allowances requires considerable judgment and could have a significant negative or positive impact on our current and future earnings.

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**Item 7A. Quantitative and Qualitative Disclosures about Market Risk** 

**Interest Rate Sensitivity** 

As described in Note 13, "Long-Term Debt and Finance Lease Liabilities" to our accompanying audited consolidated financial statements located elsewhere in this Annual Report on Form 10-K, we have a Credit Agreement that bears interest at a rate based in part on SOFR. Accordingly, we could be exposed to fluctuations in interest rates. Based on the $250.0 million principal outstanding under our Credit Agreement as of January 1, 2023, each hundred basis point change in SOFR would result in a corresponding increase or decrease in interest expense by $2.5 million annually.

This sensitivity analysis assumes our mix of financial instruments and all other variables will remain constant in future periods. These assumptions are made in order to facilitate the sensitivity analysis and are not necessarily indicative of our future intentions.

We do not enter into derivative financial instruments for trading purposes (see Note 22, "Derivative Financial Instruments").

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**Item 8. Financial Statements and Supplementary Data** 

**INDEX TO FINANCIAL STATEMENTS** 

---

| | |
|:---|:---|
| **<u>Consolidated Financial Statements for</u>** |  |
| **<u>Sprouts Farmers Market, Inc. and Subsidiaries:</u>** |  |
| [<u>Report of Independent Registered Public Accounting Firm (PCAOB ID</u> 238<u>)</u>](#report_independent_registered_public_acc) | 57 |
| [<u>Consolidated Balance Sheets as of January 1, 2023 and January 2, 2022</u>](#consolidated_balance_sheets) | 60 |
| [<u>Consolidated Statements of Income for the fiscal years ended January 1, 2023, January 2, 2022 and January 3, 2021</u>](#consolidated_statements_operations) | 61 |
| [<u>Consolidated Statements of Comprehensive Income for the fiscal years ended January 1, 2023, January 2, 2022 and January 3, 2021</u>](#comprehensive_income) | 62 |
| [<u>Consolidated Statements of Stockholders' Equity for the fiscal years ended January 1, 2023, January 2, 2022 and January 3, 2021</u>](#consolidated_statements_stockholders_equ) | 63 |
| [<u>Consolidated Statements of Cash Flows for the fiscal years ended January 1, 2023, January 2, 2022 and January 3, 2021</u>](#consolidated_statements_cash_flows) | 64 |
| [<u>Notes to Consolidated Financial Statements</u>](#notes_to_consolidated_financial_statemen) | 65 |

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**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

To the Board of Directors and Stockholders of Sprouts Farmers Market, Inc.

**Opinions on the Financial Statements and Internal Control over Financial Reporting**

We have audited the accompanying consolidated balance sheets of Sprouts Farmers Market, Inc. and its subsidiaries (the "Company") as of January 1, 2023 and January 2, 2022, and the related consolidated statements of income, of comprehensive income, of stockholders' equity and of cash flows for each of the three years in the period ended January 1, 2023 including the related notes (collectively referred to as the "consolidated financial statements"). We also have audited the Company's internal control over financial reporting as of January 1, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of January 1, 2023 and January 2, 2022, and the results of its operations and its cash flows for each of the three years in the period ended January 1, 2023 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 1, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

**Basis for Opinions**

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Annual Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company's consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

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**Definition and Limitations of Internal Control over Financial Reporting**

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

**Critical Audit Matters**

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Valuation of Self-Insurance Reserves

As described in Notes 3 and 15 to the consolidated financial statements, the Company is self-insured for costs related to workers' compensation, general liability and employee health benefits up to certain stop-loss limits. As of January 1, 2023, the Company's recorded amounts for general liability, workers' compensation and team member health benefit liabilities was $47.6 million, with the most significant portion of the reserve balance related to workers' compensation and general liability self-insurance reserves. Management estimates the self-insurance reserves based on independent actuarial estimates, which are based on historical information and assumptions about future events. Management utilizes various techniques, including analysis of historical trends and actuarial valuation methods, to estimate the cost to settle reported claims and claims incurred but not yet reported as of the balance sheet date. When estimating the self-insurance reserves, several factors are considered by management, including (i) loss development factors, which include the development time frame and expected claim reporting and settlement patterns, and (ii) expected loss costs, which include the expected frequency and severity of claim activity.

The principal considerations for our determination that performing procedures relating to the valuation of self-insurance reserves is a critical audit matter are (i) the significant judgment by management when estimating the self-insurance reserves due to the use of various techniques to estimate the cost to settle reported claims and claims incurred but not yet reported; (ii) the high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence related to the loss development factors and expected loss costs; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

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Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the valuation of self-insurance reserves, including controls over the historical information and assumptions about future events used in the actuarial valuation methods. These procedures also included, among others (i) evaluating management's self-insurance program agreements and (ii) testing the completeness and accuracy of the underlying historical claims data used in management's assessment. Professionals with specialized skill and knowledge were used to assist in testing management's process for estimating the valuation of the self-insurance reserves, including evaluating (i) the appropriateness of the actuarial valuation methods and (ii) the reasonableness of significant assumptions related to loss development factors and expected loss costs by considering (i) current and past claim and settlement activity and (ii) whether the assumptions were consistent with evidence obtained in other areas of the audit.

/s/ PricewaterhouseCoopers LLP

Phoenix, Arizona

March 2, 2023

We have served as the Company's auditor since 2011.

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**SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES** 

**CONSOLIDATED BALANCE SHEETS** 

**(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)** 

---

| | | |
|:---|:---|:---|
|  | **January 1, 2023** | **January 2, 2022** |
| **ASSETS** |  |  |
| Current assets: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Cash and cash equivalents | $293233 | $245287 |
| &nbsp;&nbsp;&nbsp;&nbsp;Accounts receivable, net | 16108 | 21574 |
| &nbsp;&nbsp;&nbsp;&nbsp;Inventories | 310545 | 265387 |
| &nbsp;&nbsp;&nbsp;&nbsp;Prepaid expenses and other current assets | 53918 | 35468 |
| Total current assets | 673804 | 567716 |
| Property and equipment, net of accumulated depreciation | 722241 | 716029 |
| Operating lease assets, net | 1106524 | 1072019 |
| Intangible assets, net of accumulated amortization | 184960 | 184960 |
| Goodwill | 368878 | 368878 |
| Other assets | 13973 | 13513 |
| &nbsp;&nbsp;&nbsp;&nbsp;Total assets | $3070380 | $2923115 |
| **LIABILITIES AND STOCKHOLDERS' EQUITY** |  |  |
| Current liabilities: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Accounts payable | $172904 | $145901 |
| &nbsp;&nbsp;&nbsp;&nbsp;Accrued liabilities | 151306 | 155996 |
| &nbsp;&nbsp;&nbsp;&nbsp;Accrued salaries and benefits | 61574 | 58743 |
| &nbsp;&nbsp;&nbsp;&nbsp;Current portion of operating lease liabilities | 135584 | 151755 |
| &nbsp;&nbsp;&nbsp;&nbsp;Current portion of finance lease liabilities | 1012 | 1078 |
| Total current liabilities | 522380 | 513473 |
| Long-term operating lease liabilities | 1145173 | 1095909 |
| Long-term debt and finance lease liabilities | 258902 | 259656 |
| Other long-term liabilities | 36340 | 36306 |
| Deferred income tax liability | 61123 | 57895 |
| &nbsp;&nbsp;&nbsp;&nbsp;Total liabilities | 2023918 | 1963239 |
| Commitments and contingencies (Note 19) |  |  |
| Stockholders' equity: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Undesignated preferred stock; $0.001 par value; 10,000,000 shares<br> authorized, no shares issued and outstanding |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Common stock, $0.001 par value; 200,000,000 shares authorized,<br> 105,072,756 shares issued and outstanding, January 1, 2023;<br> 111,114,374 shares issued and outstanding, January 2, 2022 | 105 | 111 |
| &nbsp;&nbsp;&nbsp;&nbsp;Additional paid-in capital | 726345 | 704701 |
| &nbsp;&nbsp;&nbsp;&nbsp;Accumulated other comprehensive income (loss) |  | (3758) |
| &nbsp;&nbsp;&nbsp;&nbsp;Retained earnings | 320012 | 258822 |
| Total stockholders' equity | 1046462 | 959876 |
| &nbsp;&nbsp;&nbsp;&nbsp;Total liabilities and stockholders' equity | $3070380 | $2923115 |

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The accompanying notes are an integral part of these consolidated financial statements.

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**SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES** 

**CONSOLIDATED STATEMENTS OF INCOME** 

**(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)** 

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| | | | |
|:---|:---|:---|:---|
|  | **Year Ended** | **Year Ended** | **Year Ended** |
|  | **January 1, 2023** | **January 2, 2022** | **January 3, 2021** |
| Net sales | $6404223 | $6099869 | $6468759 |
| Cost of sales | 4055659 | 3890657 | 4089470 |
| &nbsp;&nbsp;&nbsp;&nbsp;Gross profit | 2348564 | 2209212 | 2379289 |
| Selling, general and administrative expenses | 1855649 | 1748205 | 1863869 |
| Depreciation and amortization (exclusive<br> of depreciation included in cost of <br> sales) | 123530 | 122258 | 124124 |
| Store closure and other costs, net | 11025 | 4673 | (369) |
| &nbsp;&nbsp;&nbsp;&nbsp;Income from operations | 358360 | 334076 | 391665 |
| Interest expense, net | 9047 | 11684 | 14787 |
| &nbsp;&nbsp;&nbsp;&nbsp;Income before income taxes | 349313 | 322392 | 376878 |
| Income tax provision | 88149 | 78235 | 89428 |
| &nbsp;&nbsp;&nbsp;&nbsp;Net income | $261164 | $244157 | $287450 |
| Net income per share: |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Basic | $2.41 | $2.12 | $2.44 |
| &nbsp;&nbsp;&nbsp;&nbsp;Diluted | $2.39 | $2.10 | $2.43 |
| Weighted average shares outstanding: |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Basic | 108232 | 115377 | 117821 |
| &nbsp;&nbsp;&nbsp;&nbsp;Diluted | 109139 | 116077 | 118224 |

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The accompanying notes are an integral part of these consolidated financial statements.

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**SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES** 

**CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME** 

**(IN THOUSANDS)** 

---

| | | | |
|:---|:---|:---|:---|
|  | **Year Ended** | **Year Ended** | **Year Ended** |
|  | **January 1, 2023** | **January 2, 2022** | **January 3, 2021** |
| Net income | $261164 | $244157 | $287450 |
| Other comprehensive income (loss), net of tax |  |  |  |
| Unrealized gains (losses) on cash flow <br> hedging activities, net of income tax of <br>&nbsp;&nbsp;&nbsp;&nbsp;$1,819, $3,116 and ($205) | 5259 | 9009 | (592) |
| Reclassification of net gains (losses) on <br> cash flow hedges to net income, net <br> of income tax of ($520), ($1485) and ($1107) | (1501) | (4293) | (3200) |
| &nbsp;&nbsp;&nbsp;&nbsp;Total other comprehensive income (loss) | 3758 | 4716 | (3792) |
| Comprehensive income | $264922 | $248873 | $283658 |

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The accompanying notes are an integral part of these consolidated financial statements.

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**SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES** 

**CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY** 

**(IN THOUSANDS, EXCEPT SHARE AMOUNTS)** 

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **Shares** | **Common<br>Stock** | **Additional<br>Paid-in<br>Capital** | **(Accumulated Deficit)<br>Retained<br>Earnings** | **Accumulated<br>Other<br>Comprehensive<br>Income<br>(Loss)** | **Total<br>Stockholders'<br>Equity** |
| **Balances at December 29, 2019** | 117452918 | $117 | $670966 | $(84449) | $(4682) | $581952 |
| Net income |  |  |  | 287450 |  | 287450 |
| Other comprehensive income (loss) |  |  |  |  | (3792) | (3792) |
| Issuance of shares under stock plans | 500517 | 1 | 1343 |  |  | 1344 |
| Share-based compensation |  |  | 14339 |  |  | 14339 |
| **Balances at January 3, 2021** | 117953435 | 118 | 686648 | 203001 | (8474) | 881293 |
| Net income |  |  |  | 244157 |  | 244157 |
| Other comprehensive income (loss) |  |  |  |  | 4716 | 4716 |
| Issuance of shares under stock plans | 577296 |  | 2170 |  |  | 2170 |
| Repurchase and retirement of common stock | (7416357) | (7) |  | (188336) |  | (188343) |
| Share-based compensation |  |  | 15883 |  |  | 15883 |
| **Balances at January 2, 2022** | 111114374 | 111 | 704701 | 258822 | (3758) | 959876 |
| Net income |  |  |  | 261164 |  | 261164 |
| Other comprehensive income (loss) |  |  |  |  | 3758 | 3758 |
| Issuance of shares under stock plans | 855464 |  | 5041 |  |  | 5041 |
| Repurchase and retirement of common stock | (6897082) | (6) |  | (199974) |  | (199980) |
| Share-based compensation |  |  | 16603 |  |  | 16603 |
| **Balances at January 1, 2023** | 105072756 | $105 | $726345 | $320012 | $— | $1046462 |

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The accompanying notes are an integral part of these consolidated financial statements.

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**SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES** 

**CONSOLIDATED STATEMENTS OF CASH FLOWS** 

**(IN THOUSANDS)** 

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| | | | |
|:---|:---|:---|:---|
|  | **Year Ended** | **Year Ended** | **Year Ended** |
|  | **January 1, 2023** | **January 2, 2022** | **January 3, 2021** |
| **Operating activities** |  |  |  |
| Net income | $261164 | $244157 | $287450 |
| Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Depreciation and amortization expense | 127067 | 125541 | 126507 |
| &nbsp;&nbsp;&nbsp;&nbsp;Operating lease asset amortization | 117315 | 108517 | 99276 |
| &nbsp;&nbsp;&nbsp;&nbsp;Store closure and other costs, net | 8066 | 4762 | (321) |
| &nbsp;&nbsp;&nbsp;&nbsp;Share-based compensation | 16603 | 15883 | 14339 |
| &nbsp;&nbsp;&nbsp;&nbsp;Deferred income taxes | 3228 | (178) | 3717 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other non-cash items | 672 | 1167 | 3683 |
| &nbsp;&nbsp;&nbsp;&nbsp;Changes in operating assets and liabilities: |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts receivable | 13381 | 16928 | 25977 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories | (45158) | (11417) | 21754 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prepaid expenses and other current assets | (18467) | (5879) | (14970) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other assets | 2039 | (1782) | (5461) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts payable | 13362 | 4523 | 20184 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued liabilities | 5416 | 610 | 4296 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued salaries and benefits | 2831 | (17951) | 28116 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued income tax |  |  | (2005) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Operating lease liabilities | (132889) | (120483) | (120085) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other long-term liabilities | (3301) | 401 | 1578 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash flows from operating activities | 371329 | 364799 | 494035 |
| **Investing activities** |  |  |  |
| Purchases of property and equipment | (124010) | (102378) | (121968) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash flows used in investing activities | (124010) | (102378) | (121968) |
| **Financing activities** |  |  |  |
| Proceeds from revolving credit facilities | 62500 |  |  |
| Payments on revolving credit facilities | (62500) |  | (288000) |
| Payments on finance lease liabilities | (819) | (685) | (754) |
| Payments of deferred financing costs | (3373) |  |  |
| Repurchase of common stock | (199980) | (188343) |  |
| Proceeds from exercise of stock options | 5041 | 2170 | 1343 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash flows used in financing activities | (199131) | (186858) | (287411) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Increase in cash, cash equivalents, and restricted cash | 48188 | 75563 | 84656 |
| Cash, cash equivalents, and restricted cash at beginning of the period | 247004 | 171441 | 86785 |
| Cash, cash equivalents, and restricted cash at the end of the period | $295192 | $247004 | $171441 |
| **Supplemental disclosure of cash flow information** |  |  |  |
| Cash paid for interest | $11132 | $11431 | $14786 |
| Cash paid for income taxes | 93419 | 82888 | 94767 |
| Leased assets obtained in exchange for new operating lease liabilities | 157269 | 139349 | 118075 |
| **Supplemental disclosure of non-cash investing and financing activities** |  |  |  |
| Property and equipment in accounts payable and accrued liabilities | $36177 | $25166 | $10869 |

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The accompanying notes are an integral part of these consolidated financial statements.

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**SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES** 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** 

**1. Organization and Description of Business** 

Sprouts Farmers Market, Inc., a Delaware corporation, through its subsidiaries, offers a unique grocery experience featuring an open layout with fresh produce at the heart of the store. The Company continues to bring the latest in wholesome, innovative products made with lifestyle-friendly ingredients such as organic, plant-based and gluten-free. As of January 1, 2023, the Company operated 386 stores in 23 states. For convenience, the "Company" is used to refer collectively to Sprouts Farmers Market, Inc. and, unless the context requires otherwise, its subsidiaries. The Company's store operations are conducted by its subsidiaries.

**2. Basis of Presentation** 

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries in accordance with accounting principles generally accepted in the United States of America ("GAAP"). All material intercompany accounts and transactions have been eliminated in consolidation.

The Company has one reportable and one operating segment, healthy grocery stores.

The Company categorizes the varieties of products it sells as perishable and non-perishable. Perishable product categories include produce, meat, seafood, deli, bakery, floral and dairy and dairy alternatives. Non-perishable product categories include grocery, vitamins and supplements, bulk items, frozen foods, beer and wine, and natural health and body care.

The following is a breakdown of the Company's perishable and non-perishable sales mix:

---

| | | | |
|:---|:---|:---|:---|
|  | **2022** | **2021** | **2020** |
| Perishables | 58.0% | 57.7% | 57.2% |
| Non-Perishables | 42.0% | 42.3% | 42.8% |

---

All dollar amounts are in thousands, unless otherwise indicated.

**3. Significant Accounting Policies** 

**Fiscal Years** 

The Company reports its results of operations on a 52- or 53-week fiscal calendar ending on the Sunday closest to December 31. Fiscal year 2022 ended on January 1, 2023 and included 52 weeks. Fiscal year 2021 ended on January 2, 2022 and included 52 weeks. Fiscal year 2020 ended on January 3, 2021 and included 53 weeks. Fiscal years 2022, 2021 and 2020 are referred to as 2022, 2021 and 2020, respectively.

**Significant Accounting Estimates** 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. Such estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company's critical accounting estimates include inventories, lease assumptions, self-insurance reserves, goodwill and intangible assets, impairment of long-lived assets, and income taxes. Actual results could differ from those estimates.

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**Cash and Cash Equivalents** 

The Company considers all highly liquid instruments with an original maturity of three months or less to be cash equivalents. The Company's cash and cash equivalents are maintained at financial institutions in the United States of America. Deposits in transit include sales through the end of the period, the majority of which were paid with credit and debit cards and settle within a few days of the sales transactions. The amounts due from banks for these transactions at each reporting date were as follows:

---

| | | |
|:---|:---|:---|
|  | **As Of** | **As Of** |
|  | **January 1, 2023** | **January 2, 2022** |
| Due from banks for debit and credit card transactions | $77665 | $78558 |

---

**Restricted Cash** 

Restricted cash relates to the Company's defined benefit plan forfeitures and the Company's healthcare, general liability and workers' compensation plan benefits of approximately $2.0 million and $1.7 million as of January 1, 2023 and January 2, 2022, respectively, and is included in prepaid expenses and other current assets in the accompanying consolidated balance sheets.

**Accounts Receivable** 

Accounts receivable primarily represents billings to vendors for scan, advertising and other rebates, receivables for ecommerce sales and billings to landlords for tenant allowances. Accounts receivable also includes receivables from the Company's insurance carrier for payments expected to be made in excess of self-insured retentions. The Company provides an allowance for doubtful accounts when a specific account is determined to be uncollectible.

**Inventories** 

Inventories consist of merchandise purchased for resale, which are stated at the lower of cost or net realizable value. The cost method is used for distribution center and store perishable department inventories by assigning costs to each of these items based on a first-in, first-out (FIFO) basis (net of vendor discounts).

The Company's non-perishable inventory is valued at the lower of cost or net realizable value using weighted averaging, the use of which approximates the FIFO method.

Inventories are reduced for estimated losses related to shrinkage. The Company believes that all inventories are saleable and no allowances or reserves for obsolescence were recorded as of January 1, 2023 and January 2, 2022.

**Property and Equipment** 

Property and equipment are stated at cost, net of accumulated depreciation and amortization. Expenditures for major additions and improvements to facilities as well as significant component replacements are capitalized. All other maintenance and repairs are charged to expense as incurred. When property is retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in the consolidated statements of income. Depreciation expense, which includes the amortization of assets recorded as finance leases, is computed using the straight-line method over the estimated useful lives of the individual assets. Terms of leases used in the determination of estimated useful lives may include renewal options if the exercise of the renewal option is determined to be reasonably certain.

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The following table includes the estimated useful lives of certain of the Company's asset classes:

---

| | |
|:---|:---|
| Computer hardware and software | 3 to 5 years |
| Furniture, fixtures and equipment | 7 to 20 years |
| Leasehold improvements | up to 15 years |
| Buildings | 40 years |

---

Store development costs, which include costs associated with the selection and procurement of real estate sites, are also included in property and equipment. These costs are included in leasehold improvements and are amortized over the remaining lease term of the successful sites with which they are associated.

**Self-Insurance Reserves** 

The Company uses a combination of insurance and self-insurance programs to provide for costs associated with general liability, workers' compensation and team member health benefits. Liabilities for self-insurance reserves are estimated based on independent actuarial estimates, which are based on historical information and assumptions about future events. The Company utilizes various techniques, including analysis of historical trends and actuarial valuation methods, to estimate the cost to settle reported claims and claims incurred but not yet reported as of the balance sheet date. The actuarial valuation methods consider loss development factors, which include the development time frame and expected claim reporting and settlement patterns, and expected loss costs, which include the expected frequency and severity of claim activity. Amounts expected to be recovered from insurance companies are included in the liability, with a corresponding amount recorded in accounts receivable.

**Goodwill and Intangible Assets** 

Goodwill represents the cost of acquired businesses in excess of the fair value of assets and liabilities acquired. The Company's indefinite-lived intangible assets consist of trade names related to "Sprouts Farmers Market" and liquor licenses. The Company also held intangible assets with finite useful lives consisting of the "Sunflower Farmers Market" trade name. The trade name related to "Sunflower Farmers Market" met the definition of a defensive intangible asset and is fully amortized.

Goodwill and indefinite-lived intangible assets are evaluated for impairment on an annual basis during the fourth fiscal quarter, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The Company's impairment evaluation of goodwill consists of a qualitative assessment to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The Company's qualitative assessment considered factors including changes in the competitive market, budget-to-actual performance, trends in market capitalization for the Company and its peers, turnover in key management personnel and overall changes in the macroeconomic environment. If this qualitative assessment indicates it is more likely than not that the estimated fair value of a reporting unit exceeds its carrying value, no further analysis is required, and goodwill is not impaired. Otherwise, the Company compares the estimated fair value of the reporting unit to its carrying amount with an impairment loss recognized for the amount, if any, by which carrying value exceeds estimated fair value.

The impairment evaluation for the Company's indefinite-lived intangible assets consists of a qualitative assessment similar to that for goodwill. If the qualitative assessment indicates it is more likely than not that the estimated fair value of an indefinite-lived intangible asset exceeds its carrying value, no further analysis is required, and the asset is not impaired. Otherwise, the Company compares the estimated fair value of the asset to its carrying amount with an impairment loss recognized for the amount, if any, by which carrying value exceeds estimated fair value.

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The Company has determined its business consists of a single reporting unit, healthy grocery stores. The Company has had no goodwill impairment charges for the past three fiscal years. See Note 8, "Intangible Assets" and Note 9, "Goodwill" for further discussion.

**Impairment of Long-Lived Assets** 

The Company assesses its long-lived assets, including property and equipment and right-of-use assets, for potential impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. These events primarily include current period losses combined with a history of losses or a projection of continuing losses, a significant decrease in the market value of an asset or a decision to close or relocate a store. The Company groups and evaluates long-lived assets for impairment at the individual store level, which is the lowest level at which independent identifiable cash flows are available. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset group to the future undiscounted cash flows expected to be generated by that asset group. The Company's impairment analysis contains management assumptions about key variables including sales growth rate, gross margin, payroll and other controllable expenses.

If impairment is indicated, a loss is recognized for any excess of the carrying value over the estimated fair value of the asset group. The fair value of the asset group is estimated based on the discounted future cash flows using a discount rate commensurate with the related risk or comparable market values, if available. The Company recorded an impairment loss of $8.1 million and $4.8 million in 2022 and 2021, respectively, as part of the normal course of business primarily related to the write-down of right-of-use assets and leasehold improvements. There were no impairment charges in 2020. These charges are recorded as a component of Store closure and other costs, net in the accompanying consolidated statements of income.

**Deferred Financing Costs** 

The Company capitalizes certain fees and costs incurred in connection with the issuance of debt. Deferred financing costs are amortized to interest expense over the term of the debt using the effective interest method. For the Credit Agreement and Former Credit Facility (as defined in Note 13, "Long-Term Debt and Finance Lease Liabilities"), 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.

**Leases**

The Company leases its stores, distribution centers, and administrative offices. The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease assets, current portion of operating lease liabilities and noncurrent portion of operating lease liabilities in the accompanying consolidated balance sheets. Finance leases are included in property, plant, equipment, net, current portion of finance lease liabilities, and long-term debt and finance lease liabilities in the accompanying consolidated balance sheets. Operating lease payments are charged on a straight-line basis to rent expense, a component of selling, general and administrative expenses, over the lease term and finance lease payments are charged to interest expense and depreciation and amortization expense using a debt model over the lease term.

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The Company's lease assets represent a right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Lease assets and liabilities and the related rent expense are recognized at the lease commencement date (date on which the Company gains access to the property) based on the estimated present value of lease payments over the lease term, net of landlord allowances expected to be received. The Company accounts for the lease and non-lease components as a single lease component for all current classes of leases.

Most of the Company's lease agreements include variable payments related to pass-through costs for common area maintenance ("CAM"), property taxes, and insurance. Additionally, some of the Company's lease agreements include rental payments based on a percentage of retail sales over contractual levels. These variable payments are not included in the measurement of the lease liability or asset and are expensed as incurred.

As most of the Company's lease agreements do not provide an implicit rate, the Company uses an estimated incremental borrowing rate, which is derived from third-party information available at the lease commencement date, in determining the present value of lease payments. The rate used is for a secured borrowing of a similar term as the lease.

Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to twenty years or more. The exercise of lease renewal options is at the Company's sole discretion. The lease term includes the initial contractual term as well as any options to extend the lease when it is reasonably certain that the Company will exercise that option. Leases with a term of 12 months or less ("short-term leases") are not recorded on the balance sheet. The Company does not currently have any material short-term leases. Additionally, the Company's lease agreements do not contain any residual value guarantees or material restrictive covenants.

The Company subleases certain real estate to third parties, which have all been classified as operating leases. The Company recognizes sublease income on a straight-line basis.

**Fair Value Measurements** 

The Company records its financial assets and liabilities in accordance with the framework for measuring fair value in accordance with ASC 820. This framework establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value:

Level 1: Quoted prices for identical instruments in active markets.

Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

Level 3: Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

Fair value measurements of nonfinancial assets and nonfinancial liabilities are primarily used in the valuation of derivative instruments and the impairment analysis of goodwill, intangible assets, and long-lived assets. Impairment losses related to store-level assets are calculated using significant unobservable inputs including the present value of future cash flows expected to be generated using a risk-adjusted market based weighted-average cost of capital, comparable store sales growth assumptions, and third party property appraisal data. Therefore, these inputs are classified as a level 3 measurement in the fair value hierarchy.

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**Derivative Financial Instruments**

The Company records derivatives at fair value. The designation of a derivative instrument as a hedge and its ability to meet the hedge accounting criteria determine how the Company reflects the change in fair value of the derivative instrument in its financial statements. A derivative qualifies for hedge accounting if, at inception, the derivative is expected to be highly effective in offsetting the underlying hedged cash flows, and the Company fulfills the hedge documentation standards at the time it enters into the derivative contract. The Company designates its hedge based on the exposure it is hedging. For qualifying cash flow hedges, the Company records changes in fair value in other comprehensive income ("OCI"). The Company releases the derivative's gain or loss from OCI to match the timing of the underlying hedged item's effect on earnings.

The Company reviews the effectiveness of its hedging instruments quarterly. The Company recognizes changes in the fair value for derivatives not designated as hedges or those not qualifying for hedge accounting in current period earnings. The Company discontinues hedge accounting for any hedge that is no longer evaluated to be highly effective.

The Company does not enter into derivative financial instruments for trading or speculative purposes, and it monitors the financial stability and credit standing of its counterparties in these transactions. The Company had no active derivative financial instruments as of January 1, 2023.

**Share-Based Compensation** 

The Company measures share-based compensation cost at the grant date based on the fair value of the award and recognizes share-based compensation cost as expense over the vesting period. As share-based compensation expense recognized in the consolidated statements of income is based on awards ultimately expected to vest, the amount of expense has been reduced for actual forfeitures as they occur. The Company uses the Black-Scholes option-pricing model to determine the grant date fair value for each option grant. See Note 26, "Share-Based Compensation" for a discussion of assumptions used in the calculation of fair values. Application of alternative assumptions could produce different estimates of the fair value of share-based compensation and, consequently, the related amounts recognized in the accompanying consolidated statements of income. The grant date fair value of restricted stock units ("RSUs"), performance share awards ("PSAs"), and restricted stock awards ("RSAs") is based on the closing price per share of the Company's common stock on the grant date. The Company recognizes compensation expense for time-based awards on a straight-line basis and for performance-based awards on the graded-vesting method over the vesting period of the awards.

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**Revenue Recognition** 

The Company's performance obligations are satisfied upon the transfer of goods to the customer, which occurs at the point of sale, and payment from customers is also due at the time of sale. Proceeds from the sale of gift cards are recorded as a liability at the time of sale and recognized as sales when they are redeemed by the customer and the performance obligation is satisfied by the Company. The Company's gift cards do not expire. Based on historical redemption rates, a small and relatively stable percentage of gift cards will never be redeemed, referred to as "breakage." Estimated breakage revenue is recognized over time in proportion to actual gift card redemptions and was not material in any period presented. A summary of the activity and balances in the gift card liability, net is as follows:

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| | | | |
|:---|:---|:---|:---|
|  | **Year Ended** | **Year Ended** | **Year Ended** |
|  | **January 1, 2023** | **January 2, 2022** | **January 3, 2021** |
| Balance, beginning of year | $12586 | $15888 | $15902 |
| Gift cards issued during the period but not redeemed **(1)** | 4291 | 5711 | 9895 |
| Revenue recognized from beginning liability | (5971) | (9013) | (9909) |
| Balance, end of year | $10906 | $12586 | $15888 |

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1) net of estimated breakage

The nature of goods the Company transfers to customers at the point of sale are inventories, consisting of merchandise purchased for resale.

The Company does not have any material contract assets or receivables from contracts with customers, any revenue recognized in the current period from performance obligations satisfied in previous periods, any contract performance obligations, or any material costs to obtain or fulfill a contract as of January 1, 2023.

**Cost of Sales** 

Cost of sales includes the cost of inventory sold during the period, including the direct costs of purchased merchandise (net of discounts and allowances), distribution and supply chain costs, and depreciation and amortization for distribution centers and supply chain related assets. The Company recognizes vendor allowances and merchandise volume related rebate allowances as a reduction of inventories during the period when earned and reflects the allowances as a component of cost of sales as the inventory is sold.

The Company's largest supplier accounted for approximately 45%, 44% and 42% of total purchases during 2022, 2021 and 2020, respectively.

**Selling, General and Administrative Expenses** 

Selling, general and administrative expenses primarily consist of salaries, wages and benefits costs, share-based compensation, occupancy costs (including rent, property taxes, utilities, CAM and insurance), advertising costs, buying costs, pre-opening and other administrative costs.

The Company charges certain vendors to place advertisements in the Company's in-store guide and circulars under a cooperative advertising program. The Company records rebates received from vendors in connection with cooperative advertising programs as a reduction to advertising costs when the allowance represents a reimbursement of a specific incremental and identifiable cost. Advertising costs are expensed as incurred. Advertising expense, net of rebates, was $49.2 million, $45.9 million and $54.4 million for 2022, 2021 and 2020, respectively.

**Depreciation and amortization**

Depreciation and amortization expense (exclusive of depreciation included in cost of sales) primarily consists of depreciation and amortization for buildings, store leasehold improvements, and equipment.

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**Income Taxes** 

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company's deferred tax assets are subject to periodic recoverability assessments. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount that more likely than not will be realized. Realization of the deferred tax assets is principally dependent upon achievement of projected future taxable income offset by deferred tax liabilities. Changes in recognition or measurement are reflected in the period in which the judgment occurs.

The Company files income tax returns for federal purposes and in many states. The Company's tax filings remain subject to examination by applicable tax authorities for a certain length of time, generally three years, following the tax year to which those filings relate.

The Company recognizes the effect of uncertain income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest and penalties related to unrecognized tax benefits as part of income tax expense.

**Share Repurchases**

The Company has elected to retire shares repurchased to date. Shares retired become part of the pool of authorized but unissued shares. The Company has elected to record the purchase price of the retired shares in excess of par value directly as a reduction of retained earnings.

**Net Income per Share** 

Basic net income per share is calculated by dividing net income by the weighted average number of shares outstanding during the fiscal period.

Diluted net income per share is based on the weighted average number of shares outstanding, plus, where applicable, shares that would have been outstanding related to dilutive options, PSAs, RSAs, and RSUs.

**Comprehensive Income** 

Comprehensive income consists of net income and the unrealized gains or losses on derivative instruments that qualify for and have been designated as cash flow hedges, for all periods presented.

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**Recently Adopted Accounting Pronouncements** 

Reference Rate Reform

In March 2020 and January 2021, the FASB issued ASU no. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting" and ASU 2021-01, "Reference Rate Reform (Topic 848): Scope," respectively. The amendments in these updates provide optional expedients and exceptions for a limited period of time to ease the potential burden in accounting for contracts, hedging relationships, and other transactions affected by reference rate reform. During 2022, the Company adopted certain optional expedients provided under Topic 848 that permitted its hedging relationships to continue without de-designation upon changes due to reference rate reform. The adoption of this guidance resulted in no material impact to the Company's consolidated financial statements. See Note 22, "Derivative Financial Instruments" for more information on our hedging activities.

Income Taxes –Accounting for Income Taxes

In December 2019, the FASB issued ASU no. 2019-12, "Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes." Among other things, the amendment removes certain exceptions for periods with operating losses, and reduces the complexity surrounding franchise tax, step up in tax basis of goodwill in conjunction with a business combination, and timing of enacting changes in tax laws during interim periods. The Company adopted this standard effective January 4, 2021 on a prospective basis. There was no impact on the Company's consolidated financial statements.

Financial Instruments – Credit Losses

In June 2016, the FASB issued ASU no. 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." The amendments in this update introduce a new standard to replace the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Subsequent to the initial standards, the FASB has also issued several ASUs to clarify specific topics. The Company adopted ASU 2016-13 effective December 30, 2019, using the modified retrospective approach. There was no impact to opening retained earnings as of December 30, 2019 or on the Company's consolidated financial statements.

Compensation – Fair Value Disclosures

In August 2018, the FASB issued ASU No. 2018-13, "Fair value measurement (Topic 820) – Disclosure framework – Changes to the disclosure requirements for fair value measurement." The amendments in this update improve the effectiveness of fair value measurement disclosures. The Company adopted this standard effective December 30, 2019. There was no impact on the Company's disclosure in its consolidated financial statements.

**Recently Issued Accounting Pronouncements Not Yet Adopted** 

No other new accounting pronouncements issued or effective during 2022 had, or are expected to have, a material impact on the Company's consolidated financial statements.

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**4. Accounts Receivable**

A summary of accounts receivable is as follows:

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| | | |
|:---|:---|:---|
|  | **As Of** | **As Of** |
|  | **January 1, 2023** | **January 2, 2022** |
| Landlords | $232 | $4856 |
| Vendors | 3544 | 4191 |
| Insurance | 2320 | 2161 |
| Ecommerce | 6988 | 4857 |
| Other | 3024 | 5509 |
| Total | $16108 | $21574 |

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The Company recorded allowances for certain vendor receivables of $1.4 million and $0.7 million at January 1, 2023 and January 2, 2022, respectively.

**5. Prepaid Expenses and Other Current Assets** 

A summary of prepaid expenses and other current assets is as follows:

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| | | |
|:---|:---|:---|
|  | **As Of** | **As Of** |
|  | **January 1, 2023** | **January 2, 2022** |
| Prepaid expenses | $33034 | $21548 |
| Restricted cash | 1959 | 1717 |
| Income tax receivable | 18155 | 11639 |
| Other current assets | 770 | 564 |
| Total | $53918 | $35468 |

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**6. Property and Equipment** 

A summary of property and equipment, net is as follows:

---

| | | |
|:---|:---|:---|
|  | **As Of** | **As Of** |
|  | **January 1, 2023** | **January 2, 2022** |
| Land and finance lease assets | $15753 | $15753 |
| Furniture, fixtures and equipment | 850357 | 797169 |
| Leasehold improvements | 679880 | 665237 |
| Construction in progress | 110106 | 58621 |
| &nbsp;&nbsp;&nbsp;&nbsp;Total property and equipment | 1656096 | 1536780 |
| Accumulated depreciation and amortization | (933855) | (820751) |
| &nbsp;&nbsp;&nbsp;&nbsp;Property and equipment, net | $722241 | $716029 |

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Depreciation expense was $125.7 million, $124.1 million and $125.6 million for 2022, 2021 and 2020, respectively. Depreciation expense is primarily reflected in depreciation and amortization on the consolidated statements of income.

Impairment expense was $8.1 million and $4.8 million for 2022 and 2021, respectively. There was no impairment expense recognized in 2020.

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**7. Leases**

Lease cost includes both the fixed and variable expenses recorded for leases. The components of lease cost are as follows:

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| | | | | |
|:---|:---|:---|:---|:---|
|  |  | **Year Ended** | **Year Ended** | **Year Ended** |
|  | **Classification** | **January 1, 2023** | **January 2, 2022** | **January 3, 2021** |
| Operating lease cost | Selling, general and administrative expenses (1) | $204559 | $196602 | $191279 |
| Finance lease cost: |  |  |  |  |
| Amortization of Property<br> and Equipment | Depreciation and amortization | 966 | 966 | 966 |
| Interest on lease liabilities | Interest expense | 852 | 906 | 970 |
| Variable lease cost | Selling, general and administrative expenses (1) | 65979 | 60763 | 57789 |
| Sublease income | Selling, general and administrative expenses | (833) | (839) | (1192) |
| Total net lease cost |  | $271523 | $258398 | $249812 |

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)Supply chain-related amounts of $12.4 million, $10.6 million and $7.8 million were included in cost of sales for 2022, 2021 and 2020, respectively.

Supplemental balance sheet information related to leases is as follows:

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| | | | |
|:---|:---|:---|:---|
|  |  | **As of** | **As of** |
|  | **Classification** | **January 1, 2023** | **January 2, 2022** |
| **Assets** |  |  |  |
| Operating | Operating lease assets | $1106524 | $1072019 |
| Finance | Property and equipment, net | 7285 | 8251 |
| Total lease assets |  | $1113809 | $1080270 |
| **Liabilities** |  |  |  |
| Current |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Operating | Current portion of operating lease liabilities | $135584 | $151755 |
| &nbsp;&nbsp;&nbsp;&nbsp;Finance | Current portion of finance lease liabilities | 1012 | 1078 |
| Noncurrent |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Operating | Long-term operating lease liabilities | 1145173 | 1095909 |
| &nbsp;&nbsp;&nbsp;&nbsp;Finance | Long-term debt and finance lease liabilities | 8902 | 9656 |
| Total lease liabilities |  | $1290671 | $1258398 |

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| | | | |
|:---|:---|:---|:---|
|  | **2022** | **2021** | **2020** |
| Weighted average remaining lease term (years) |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Operating leases | 9.4 | 9.6 | 9.8 |
| &nbsp;&nbsp;&nbsp;&nbsp;Finance leases | 7.8 | 8.8 | 9.7 |
| Weighted average discount rate |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Operating leases | 7.1% | 6.7% | 7.2% |
| &nbsp;&nbsp;&nbsp;&nbsp;Finance leases | 8.4% | 8.4% | 8.4% |

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Supplemental cash flow and other information related to leases is as follows:

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| | | | |
|:---|:---|:---|:---|
|  | **Year Ended** | **Year Ended** | **Year Ended** |
|  | **January 1, 2023** | **January 2, 2022** | **January 3, 2021** |
| Cash paid for amounts included in measurement of lease liabilities: |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Operating cash flows for operating leases | $207516 | $182926 | $186280 |
| &nbsp;&nbsp;&nbsp;&nbsp;Operating cash flows for finance leases | 852 | 906 | 970 |
| Lease assets obtained in exchange for lease liabilities: |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Operating leases | $157269 | $139349 | $118075 |

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A summary of maturities of lease liabilities is as follows:

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| | | | |
|:---|:---|:---|:---|
|  | **Operating Leases(1), (2)** | **Finance Leases** | **Total** |
| 2023 | $202017 | $1556 | $203573 |
| 2024 | 223817 | 1734 | 225551 |
| 2025 | 224534 | 1904 | 226438 |
| 2026 | 192101 | 1758 | 193859 |
| 2027 | 176190 | 1845 | 178035 |
| Thereafter | 910418 | 4959 | 915377 |
| &nbsp;&nbsp;&nbsp;&nbsp;Total lease payments | 1929077 | 13756 | 1942833 |
| Less: Imputed interest | (648320) | (3842) | (652162) |
| &nbsp;&nbsp;&nbsp;&nbsp;Total lease liabilities | 1280757 | 9914 | 1290671 |
| Less: Current portion | (135584) | (1012) | (136596) |
| &nbsp;&nbsp;&nbsp;&nbsp;Long-term lease liabilities | $1145173 | $8902 | $1154075 |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)Operating lease payments include $67.5 million related to periods covered by options to extend lease terms that are reasonably certain of being exercised and exclude $504.5 million of legally binding minimum lease payments for leases executed but not yet commenced.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2)We have subtenant agreements under which we will receive $1.0 million in 2023, $1.0 million in 2024, $0.9 million in 2025, $0.7 million in 2026, $0.6 million in 2027 and $0.4 million thereafter.

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**8. Intangible Assets** 

A summary of the activity and balances in intangible assets is as follows:

---

| | | | |
|:---|:---|:---|:---|
|  | **Balance at January 3, 2021** | **Adjustments/Transfers** | **Balance at January 2, 2022** |
| Indefinite-lived trade names | $182937 | $— | $182937 |
| Indefinite-lived liquor licenses | 2023 |  | 2023 |
| &nbsp;&nbsp;&nbsp;&nbsp;Total intangible assets (1) | $184960 | $— | $184960 |

---

---

| | | | |
|:---|:---|:---|:---|
|  | **Balance at January 2, 2022** | **Adjustments/Transfers** | **Balance at January 1, 2023** |
| Indefinite-lived trade names | $182937 | $— | $182937 |
| Indefinite-lived liquor licenses | 2023 |  | 2023 |
| &nbsp;&nbsp;&nbsp;&nbsp;Total intangible assets (1) | $184960 | $— | $184960 |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)Excludes the original cost and accumulated amortization of fully-amortized finite-lived intangible assets.

There was no amortization expense in 2022 and 2021. Amortization expense was ($0.4) million in 2020.

**9. Goodwill** 

The Company's goodwill balance was $368.9 million as of January 1, 2023 and January 2, 2022. As of January 1, 2023 and January 2, 2022, the Company had no accumulated goodwill impairment losses. The goodwill was related to the acquisition of Sunflower Farmers Market stores and Henry's Farmers Market stores.

**10. Other Assets** 

As of January 1, 2023 and January 2, 2022, other assets of $14.0 million and $13.5 million, respectively, primarily consisted of deferred software as a service, deferred financing costs, capitalized durable supplies, utilities deposits and miscellaneous other assets.

**11. Accrued Liabilities** 

A summary of accrued liabilities is as follows:

---

| | | |
|:---|:---|:---|
|  | **As Of** | **As Of** |
|  | **January 1, 2023** | **January 2, 2022** |
| Self-insurance reserves | $23954 | $27136 |
| Accrued occupancy related (CAM, property taxes, etc.) | 24981 | 20649 |
| Gift cards, net of breakage | 10906 | 12586 |
| Accrued sales and use tax | 13820 | 12327 |
| Other accrued liabilities | 77645 | 83298 |
| Total | $151306 | $155996 |

---

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**12. Accrued Salaries and Benefits** 

A summary of accrued salaries and benefits is as follows:

---

| | | |
|:---|:---|:---|
|  | **As Of** | **As Of** |
|  | **January 1, 2023** | **January 2, 2022** |
| Bonuses | $23679 | $24292 |
| Payroll | 19873 | 18065 |
| Vacation | 16732 | 15302 |
| Severance and other | 1290 | 1084 |
| Total | $61574 | $58743 |

---

**13. Long-Term Debt and Finance Lease Liabilities** 

A summary of long-term debt and finance lease liabilities is as follows:

---

| | | | | |
|:---|:---|:---|:---|:---|
|  |  |  | **As of** | **As of** |
| **Facility** | **Maturity** | **Interest Rate** | **January 1, 2023** | **January 2, 2022** |
| Senior secured debt |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;$700.0 million Credit Agreement | March 25, 2027 | Variable | $250000 | $— |
| &nbsp;&nbsp;&nbsp;&nbsp;Former Credit Facility | March 27, 2023(1) | Variable |  | 250000 |
| Finance lease liabilities (see Note 7, "Leases") | Various | n/a | 8902 | 9656 |
| Long-term debt and finance lease liabilities |  |  | $258902 | $259656 |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)In connection with the execution of the Credit Agreement on March 25, 2022, the Company's obligations as borrower under the Former Credit Facility were prepaid and terminated.

A summary of maturities of long-term debt is as follows:

---

| | |
|:---|:---|
|  | **$700 million Credit Agreement** |
| 2023 | $— |
| 2024 |  |
| 2025 |  |
| 2026 |  |
| 2027 | 250000 |
| Thereafter |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Total | $250000 |

---

**New Credit Agreement**

The Company's subsidiary, Sprouts Farmers Markets Holdings, LLC ("Intermediate Holdings"), is the borrower under a credit agreement entered into on March 25, 2022 (the "Credit Agreement"). The Credit Agreement provides for a revolving credit facility (the "Revolving Credit Facility") with an initial aggregate commitment of $700.0 million. Amounts outstanding under the Credit Agreement may be increased from time to time in accordance with an expansion feature set forth in the Credit Agreement.

The Company capitalized debt issuance costs of $3.4 million related to the Credit Agreement, which, combined with the remaining $0.5 million debt issuance costs in respect of that certain amended and restated credit agreement entered into on March 27, 2018, by and among the Company, Intermediate Holdings, certain lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent (the "Former Credit Facility"), which remained outstanding as of the time of Intermediate Holdings' entry into the Credit Agreement, are being amortized on a straight-line basis to interest expense over the five-year term of the Credit Agreement.

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The Credit Agreement provides for a $70.0 million letter of credit sub-facility (the "Letter of Credit Sub-Facility") and a $50.0 million swingline facility. Letters of credit issued under the Credit Agreement reduce the capacity of Intermediate Holdings to borrow under the Revolving Credit Facility. Letters of credit totaling $24.8 million have been issued as of January 1, 2023 under the Letter of Credit Sub-Facility, primarily to support the Company's insurance programs.

Guarantees

Obligations under the Credit Agreement are guaranteed by the Company and substantially all of its existing and future wholly-owned material domestic subsidiaries, and are secured by first-priority security interests in substantially all of the assets of the Company, Intermediate Holdings, and the subsidiary guarantors, including, without limitation, a pledge by the Company of its equity interest in Intermediate Holdings.

Interest and Fees

Loans under the Credit Agreement will initially bear interest, at the Company's option, either at the Term SOFR (with a floor of 0.00%) plus a 0.10% SOFR adjustment and 1.00% per annum or base rate (with a floor of 0.00%) plus 0.00% per annum. The interest rate margins are subject to upward adjustments pursuant to a pricing grid based on the Company's total net leverage ratio as set forth in the Credit Agreement and to upward or downward adjustments of up to 0.05% based upon the achievement of certain diversity and sustainability-linked metric thresholds, as set forth in the Credit Agreement.

Under the terms of the Credit Agreement, the Company is obligated to pay a commitment fee on the available unused amount of the commitments, which commitment fee ranges between 0.10% to 0.225% per annum, pursuant to a pricing grid based on the Company's total net leverage ratio. The commitment fees are subject to upward or downward adjustments of up to 0.01% based upon the achievement of certain diversity and sustainability-linked metric thresholds, as set forth in the Credit Agreement.

As of January 1, 2023, loans outstanding under the Credit Agreement bore interest at Term SOFR (as defined in the Credit Agreement) plus a 0.10% SOFR adjustment and 1.00% per annum.

As of January 1, 2023, outstanding letters of credit issued under the Credit Agreement were subject to a participation fee of 1.00% per annum and an issuance fee of 0.125% per annum.

Payments and Borrowings

The Credit Agreement is scheduled to mature, and the commitments thereunder will terminate on March 25, 2027, subject to extensions as set forth therein.

The Company may prepay loans and permanently reduce commitments under the Credit Agreement at any time in agreed-upon minimum principal amounts, without premium or penalty (except SOFR breakage costs, if applicable).

In connection with the execution of the Credit Agreement, the Company's obligations under the Former Credit Facility were prepaid and terminated.

During 2022, the Company made no additional borrowings or principal payments, other than the net change of $62.5 million in the composition of the lending syndicate associated with a modification of the Company's revolving credit facility on March 25, 2022, resulting in total outstanding debt under the Credit Agreement of $250.0 million as of January 1, 2023.

Subsequent to January 1, 2023, the Company made a $25.0 million principal payment, resulting in total outstanding debt under the Credit Agreement of $225.0 million as of February 28, 2023.

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Covenants

The Credit Agreement contains financial, affirmative and negative covenants. The negative covenants include, among other things, limitations on the Company's ability to:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•incur additional indebtedness;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•grant additional liens;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•enter into sale-leaseback transactions;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•make loans or investments;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•merge, consolidate or enter into acquisitions;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•pay dividends or distributions;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•enter into transactions with affiliates;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•enter into new lines of business;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•modify the terms of debt or other material agreements; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•change its fiscal year.

Each of these covenants is subject to customary and other agreed-upon exceptions.

In addition, the Credit Agreement requires that the Company and its subsidiaries maintain a maximum total net leverage ratio not to exceed 3.75 to 1.00, which ratio may be increased from time to time in connection with certain permitted acquisitions pursuant to conditions as set forth in the Credit Agreement, and a minimum interest coverage ratio not to be less than 3.00 to 1.00. Each of these covenants is tested on the last day of each fiscal quarter.

The Company was in compliance with all applicable covenants under the Credit Agreement as of January 1, 2023.

**Former Credit Facility**

On March 27, 2018, Intermediate Holdings, as borrower, entered into the Former Credit Facility that provided for a revolving credit facility with an initial aggregate commitment of $700.0 million, subject to an expansion feature set forth therein. The Former Credit Facility also provided for a letter of credit subfacility and a $15.0 million swingline facility.

The Former Credit Facility was scheduled to mature, and the commitments thereunder were scheduled to terminate, on March 27, 2023.

Loans under the Former Credit Facility bore interest at LIBOR plus a spread between 1.25% and 2.00% per annum or prime plus a spread between 0.25% and 1.00%. The interest rate spreads were subject to adjustment pursuant to a pricing grid based on the Company's total net leverage ratio, as defined in the Former Credit Facility. Under the terms of the Former Credit Facility, the Company was obligated to pay a commitment fee on the available unused amount of the commitments between 0.15% to 0.30% per annum, also pursuant to a pricing grid based on the Company's total net leverage ratio. Outstanding letters of credit were subject to a participation fee between 1.25% and 2.00% per annum pursuant to a pricing grid based on the Company's total net leverage ratio and an issuance fee of 0.125% per annum.

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**14. Other Long-Term Liabilities**

A summary of other long-term liabilities is as follows:

---

| | | |
|:---|:---|:---|
|  | **As Of** | **As Of** |
|  | **January 1, 2023** | **January 2, 2022** |
| Long-term portion of self-insurance reserves | $23658 | $23393 |
| Other | 12682 | 12913 |
| Total | $36340 | $36306 |

---

**15. Self-Insurance Programs** 

The Company is self-insured for costs related to workers' compensation, general liability and employee health benefits up to certain self-insured retentions and stop-loss limits. The Company establishes reserves for the ultimate obligation of reported and incurred but not reported ("IBNR") claims. IBNR claims are estimated using various techniques, including analysis of historical trends and actuarial valuation methods.

The Company purchases coverage from third-party insurers for exposures in excess of certain stop-loss limits and recorded receivables of $1.2 million and $1.6 million from its insurance carriers for payments expected to be made in excess of self-insured retentions at January 1, 2023 and January 2, 2022, respectively. The Company recorded amounts for general liability, workers' compensation and team member health benefit liabilities of $47.6 million and $50.5 million at January 1, 2023 and January 2, 2022, respectively.

The following table summarizes the changes in the Company's self-insurance reserves through January 1, 2023:

---

| | | | |
|:---|:---|:---|:---|
|  | **Year Ended** | **Year Ended** | **Year Ended** |
|  | **January 1, 2023** | **January 2, 2022** | **January 3, 2021** |
| Beginning Balance | $50529 | $48518 | $46863 |
| Expenses, net of actuarial adjustments | 76720 | 85892 | 86786 |
| Claim Payments | (79637) | (83881) | (85131) |
| Ending Balance | 47612 | 50529 | 48518 |
| Less: Current portion | (23954) | (27136) | (25227) |
| Long-term portion | $23658 | $23393 | $23291 |

---

The current portion of the self-insurance reserves is included in "Accrued Liabilities" and the long-term portion is included in "Other Long-Term Liabilities" in the accompanying consolidated balance sheets.

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**16. Defined Contribution Plan** 

The Company maintains the Sprouts Farmers Market, Inc. Employee 401(k) Savings Plan (the "Plan"), which is a defined contribution plan covering all eligible team members. Under the provisions of the Plan, participants may direct the Company to defer a portion of their compensation to the Plan, subject to the Internal Revenue Code limitations. The Company provides for an employer matching contribution equal to 50% of each dollar contributed by the participants up to 6% of their eligible compensation.

Total expense recorded for the matching under the Plan:

---

| | | |
|:---|:---|:---|
| **Year Ended** | **Year Ended** | **Year Ended** |
| **January 1, 2023** | **January 2, 2022** | **January 3, 2021** |
| $7820 | $7517 | $6588 |

---

**17. Income Taxes**

**Income Tax Provision** 

The income tax provision consists of the following:

---

| | | | |
|:---|:---|:---|:---|
|  | **Year Ended** | **Year Ended** | **Year Ended** |
|  | **January 1, 2023** | **January 2, 2022** | **January 3, 2021** |
| U.S. Federal—current | $66398 | $60329 | $63957 |
| U.S. Federal—deferred | 1028 | (1663) | 3725 |
| U.S. Federal—total | 67426 | 58666 | 67682 |
| State—current | 19823 | 19715 | 20442 |
| State—deferred | 900 | (146) | 1304 |
| State—total | 20723 | 19569 | 21746 |
| Total provision | $88149 | $78235 | $89428 |

---

**Tax Rate Reconciliation** 

Income tax provision differed from the amounts computed by applying the U.S. federal income tax rate to pre-tax income as a result of the following:

---

| | | | |
|:---|:---|:---|:---|
|  | **Year Ended** | **Year Ended** | **Year Ended** |
|  | **January 1, 2023** | **January 2, 2022** | **January 3, 2021** |
| Federal statutory rate | 21.0% | 21.0% | 21.0% |
| Increase (decrease) in income taxes resulting from: |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;State income taxes, net of federal benefit | 4.7 | 4.8 | 4.6 |
| &nbsp;&nbsp;&nbsp;&nbsp;Enhanced charitable contribution impact | (0.9) | (1.5) | (1.0) |
| &nbsp;&nbsp;&nbsp;&nbsp;Amended returns |  | (0.2) | (1.0) |
| &nbsp;&nbsp;&nbsp;&nbsp;Benefit of federal tax credit | (0.5) | (0.4) | (0.9) |
| &nbsp;&nbsp;&nbsp;&nbsp;Other, net | 0.9 | 0.6 | 1.0 |
| Effective income tax rate | 25.2% | 24.3% | 23.7% |

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The effective income tax rate increased to 25.2% in 2022 from 24.3% in 2021 primarily due to decreased charitable contribution deductions in 2022 from the lapsing of benefits initially provided for in the CARES Act. The effective income tax rate increased to 24.3% in 2021 from 23.7% in 2020 primarily due to benefits recognized from amended returns in 2020, partially offset by increased charitable contribution deductions in 2021.

Excess tax benefits or detriments associated with share-based payment awards are recognized as income tax benefits or expense in the income statement. The tax effects of exercised or vested awards are treated as discrete items in the reporting period in which they occur. The income tax benefit resulting from share-based awards was $1.7 million and $0.2 million for 2022 and 2021, respectively, and is reflected as a reduction to the 2022 and 2021 income tax provision. The income tax detriment resulting from share-based awards was $0.5 million for 2020 and is reflected as an increase to the 2020 income tax provision.

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**Deferred Taxes** 

Significant components of the Company's deferred tax assets and deferred tax liabilities are as follows:

---

| | | |
|:---|:---|:---|
|  | **As Of** | **As Of** |
|  | **January 1, 2023** | **January 2, 2022** |
| Deferred tax assets |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Employee benefits | $16052 | $17543 |
| &nbsp;&nbsp;&nbsp;&nbsp;Tax credits | 166 | 228 |
| &nbsp;&nbsp;&nbsp;&nbsp;Operating leases | 329154 | 320650 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other lease related | 5740 | 5881 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other accrued liabilities | 4004 | 4283 |
| &nbsp;&nbsp;&nbsp;&nbsp;Charitable contribution carryforward | 2819 | 1781 |
| &nbsp;&nbsp;&nbsp;&nbsp;Inventories and other | 2605 | 3206 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total gross deferred tax assets | 360540 | 353572 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Less: Valuation Allowance | (917) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total deferred tax assets, net of valuation allowance | 359623 | 353572 |
| Deferred tax liabilities |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Depreciation and amortization | (83091) | (88970) |
| &nbsp;&nbsp;&nbsp;&nbsp;Intangible assets | (52413) | (45978) |
| &nbsp;&nbsp;&nbsp;&nbsp;Operating leases | (284377) | (275509) |
| &nbsp;&nbsp;&nbsp;&nbsp;Asset retirement obligations | (865) | (1010) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total gross deferred tax liabilities | (420746) | (411467) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net deferred tax liability | $(61123) | $(57895) |

---

A valuation allowance is established for deferred tax assets if it is more likely than not that these items will either expire before the Company is able to realize their benefits, or that the realization of future deductions is uncertain.

Management performs an assessment over future taxable income to analyze whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.

The valuation allowance was $0.9 million as of January 1, 2023, related to contribution carryforwards that management does not believe will ultimately be realized. There was no valuation allowance as of January 2, 2022.

The Company has evaluated all available positive and negative evidence and believes it is probable that all other the deferred tax assets will be realized and has not recorded any other valuation allowance against the Company's deferred tax assets as of January 1, 2023 and January 2, 2022.

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The Company applies the authoritative accounting guidance under ASC 740 for the recognition, measurement, classification and disclosure of uncertain tax positions taken or expected to be taken in a tax return.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:

---

| | | | |
|:---|:---|:---|:---|
|  | **As Of** | **As Of** | **As Of** |
|  | **January 1, 2023** | **January 2, 2022** | **January 3, 2021** |
| Beginning balance | $1770 | $1803 | $1343 |
| Additions based on tax positions related to the<br> current year | 43 | 16 | 16 |
| Additions based on tax positions related to prior years |  | 31 | 647 |
| Reductions for settlements with taxing authorities | (694) |  |  |
| Reductions for tax positions for prior years |  | (80) | (203) |
| Ending balance | $1119 | $1770 | $1803 |

---

The Company had unrecognized tax benefits (tax effected) of $1.1 million and $1.8 million as of January 1, 2023 and January 2, 2022, respectively. These would impact the effective tax rate if recognized.

The Company's policy is to recognize accrued interest and penalties as a component of income tax expense.

The Company does not anticipate a decrease in the total amount of unrecognized tax benefits during the next twelve months.

The Company files income tax returns with federal and state tax authorities within the United States. The general statute of limitations for income tax examinations remains open for federal tax returns for tax years 2017 through 2021 and state tax returns for the tax years 2018 through 2021.

**18. Related Party Transactions**

On May 24, 2022, the Company appointed a new member to its board of directors who is an executive officer of a company that is a supplier of nutrition bars and related products to the Company for resale. Since the beginning of the second quarter of 2022, the cost of sales recognized from this supplier was $3.4 million. The Company did not enter into any material related party transactions during 2021.

**19. Commitments and Contingencies**

**Commitments**

Real estate obligations, which include legally binding minimum lease payments for leases executed but not yet commenced, were $504.5 million as of January 1, 2023.

In addition to its lease obligations, the Company maintains certain purchase commitments with various vendors to ensure its operational needs are fulfilled. As of January 1, 2023, total future purchase commitments under noncancelable service and supply contracts were $19.8 million.

Commitments related to the Company's business operations cover varying periods of time and are not individually significant. These commitments are expected to be fulfilled with no adverse consequences to the Company's operations or financial conditions.

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**Contingencies**

The Company is exposed to claims and litigation matters arising in the ordinary course of business and uses various methods to resolve these matters that are believed to best serve the interests of the Company's stakeholders. The Company's primary contingencies are associated with self-insurance obligations and litigation matters. Self-insurance liabilities require significant judgments, and actual claim settlements and associated expenses may differ from the Company's current provisions for loss. See Note 15, "Self-Insurance Programs" for more information.

**"Phishing" Scam Actions**

In April 2016, four complaints were filed, two in the federal courts of California, one in the Superior Court of California and one in the federal court in the District of Colorado, each on behalf of a purported class of the Company's current and former team members whose personally identifiable information ("PII") was inadvertently disclosed to an unauthorized third party that perpetrated an email "phishing" scam against one of the Company's team members. The complaints alleged the Company failed to properly safeguard the PII in accordance with applicable law. The complaints sought damages on behalf of the purported class in unspecified amounts, attorneys' fees and litigation expenses. On March 1, 2019, a number of individual plaintiffs filed arbitration demands. On May 15, 2019, certain other plaintiffs filed a second amended class action complaint in the District of Arizona, alleging that certain subclasses of team members are not subject to the Company's arbitration agreement and attempted to pursue those team members' claims in federal court. In late August 2019, the Company reached an agreement in principle to settle the majority of these claims, which were funded in the fourth quarter of 2019. Primary funding for the settlement came from the Company's cyber insurance policy, and the settlement did not have a material impact on the consolidated financial statements. Following the group settlement, three (3) individual claimants planned to proceed with arbitration of their claims. The three individual arbitrations were settled in late June and early July 2020, with immaterial settlement amounts fully funded by the Company's cyber insurance policy.

**Proposition 65 Coffee Action**

On April 13, 2010, an organization named Council for Education and Research on Toxics ("CERT") filed a lawsuit in the Superior Court of the State of California, County of Los Angeles, against nearly 80 defendants who manufacture, package, distribute or sell brewed coffee, including the Company. CERT alleged that the defendants failed to provide warnings for their coffee products of exposure to the chemical acrylamide as required under California Health and Safety Code section 25249.5, the California Safe Drinking Water and Toxic Enforcement Act of 1986, better known as Proposition 65. CERT seeks equitable relief, including providing warnings to consumers of coffee products, as well as civil penalties.

On November 20, 2020, CERT filed a notice of appeal to appeal the ruling on the defense motion for summary judgment. On October 26, 2022, the appellate court affirmed the trial court's decision. In December 2022, CERT appealed this ruling to the Supreme Court of the State of California, which denied the petition for review in February 2023. Until the case is dismissed by the trial court, the Company is unable to predict or reasonably estimate any potential loss or effect on the Company or its operations. Accordingly, no loss contingency was recorded for this matter.

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**20**. Capital Stock

**Common stock** 

As of January 1, 2023, 105,072,756 shares of the Company's common stock were issued and outstanding after the repurchase and retirement of 6,897,082 shares during 2022, as described below. As of January 1, 2023, 6,623,638 shares of common stock are reserved for issuance under the 2022 Incentive Plan (see Note 26, "Share-Based Compensation").

The following table outlines the options exercised in exchange for the issuance of shares of common stock during 2022, 2021 and 2020.

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **Year Ended** | **Year Ended** | **Year Ended** | **Year Ended** | **Year Ended** | **Year Ended** |
|  | **January 1, 2023** | **January 1, 2023** | **January 2, 2022** | **January 2, 2022** | **January 3, 2021** | **January 3, 2021** |
| Options exercised |  | 218,509 |  | 115,123 |  | 59,561 |
| Other share issuances under stock plans |  | 636,955 |  | 462,173 |  | 440,956 |

---

**Share Repurchases**

On March 2, 2022, the Company's board of directors authorized a new $600 million share repurchase program for its common stock. The new authorization replaced the Company's then-existing share repurchase authorization of $300 million that was due to expire on March 3, 2024, of which $99.8 million remained available upon its replacement. No further shares may be repurchased under the $300 million authorization. The following table outlines the common stock share repurchase programs authorized by the Company's board of directors and the related repurchase activity and available authorization as of January 1, 2023:

---

| | | | | |
|:---|:---|:---|:---|:---|
| **Effective date** | **Expiration date** | **Amount<br>authorized** | **Cost of<br>repurchases** | **Authorization<br>available** |
| March 3, 2021 | March 2, 2022 | $300000 | $200200 | $— |
| March 2, 2022 | December 31, 2023 | $600000 | $188123 | $411877 |

---

The shares under the Company's repurchase programs may be purchased on a discretionary basis from time to time through the applicable expiration date, subject to general business and market conditions and other investment opportunities, through open market purchases, privately negotiated transactions, or other means, including through Rule 10b5-1 trading plans. The board's authorization of the share repurchase programs does not obligate the Company to acquire any particular amount of common stock, and the repurchase programs may be commenced, suspended, or discontinued at any time.

Share repurchase activity under the Company's repurchase programs for the periods indicated was as follows (total cost in thousands):

---

| | | |
|:---|:---|:---|
|  | **Year Ended** | **Year Ended** |
|  | **January 1, 2023** | **January 2, 2022** |
| Number of common shares acquired | 6897082 | 7416357 |
| Average price per common share acquired | $28.99 | $25.40 |
| Total cost of common shares acquired | $199980 | $188343 |

---

Shares purchased under the Company's repurchase programs were subsequently retired and the excess of the repurchase price over par value was charged to retained earnings.

Subsequent to January 1, 2023 and through February 28, 2023, we repurchased an additional 2.0 million shares of common stock for $64.0 million.

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**Preferred Stock** 

The Company's board of directors is authorized, subject to limitations prescribed by Delaware law, to issue up to 10,000,000 shares of the Company's preferred stock in one or more series, to establish from time to time the number of shares to be included in each series, to fix the designation, powers, preferences, and rights of the shares of each series and any of its qualifications, limitations, or restrictions, in each case without further action by the Company's stockholders. The Company's board of directors can also increase or decrease the number of shares of any series of preferred stock, but not below the number of shares of that series then outstanding. The Company's board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of the common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring, or preventing a change in control of the Company and might adversely affect the market price of the Company's common stock and the voting and other rights of the holders of the Company's common stock. The Company has no current plan to issue any shares of preferred stock.

**21. Net Income per Share** 

The computation of basic net income per share is based on the number of weighted average shares outstanding during the period. The computation of diluted net income per share includes the dilutive effect of share equivalents consisting of incremental shares deemed outstanding from the assumed exercise of options, unvested RSUs and unvested RSAs. PSAs are included in the computation of diluted net income per share only to the extent that the underlying performance conditions are satisfied prior to the end of the reporting period or would be satisfied if the end of the reporting period were the end of the related performance period, and if the effect would be dilutive.

A reconciliation of the numerators and denominators of the basic and diluted net income per share calculations is as follows (in thousands, except per share amounts):

---

| | | | |
|:---|:---|:---|:---|
|  | **Year Ended** | **Year Ended** | **Year Ended** |
|  | **January 1, 2023** | **January 2, 2022** | **January 3, 2021** |
| Basic net income per share: |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Net income | $261164 | $244157 | $287450 |
| &nbsp;&nbsp;&nbsp;&nbsp;Weighted average shares outstanding | 108232 | 115377 | 117821 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Basic net income per share | $2.41 | $2.12 | $2.44 |
| Diluted net income per share: |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Net income | $261164 | $244157 | $287450 |
| &nbsp;&nbsp;&nbsp;&nbsp;Weighted average shares outstanding -<br> basic | 108232 | 115377 | 117821 |
| &nbsp;&nbsp;&nbsp;&nbsp;Dilutive effect of share-based awards: |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Assumed exercise of options to purchase shares | 337 | 215 | 16 |
| &nbsp;&nbsp;&nbsp;&nbsp;RSUs | 394 | 390 | 341 |
| &nbsp;&nbsp;&nbsp;&nbsp;RSAs |  |  | 9 |
| &nbsp;&nbsp;&nbsp;&nbsp;PSAs | 176 | 95 | 37 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Weighted average shares and<br> equivalent shares outstanding | 109139 | 116077 | 118224 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Diluted net income per share | $2.39 | $2.10 | $2.43 |

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For the year ended January 1, 2023, the Company had 0.2 million options and 0.3 million PSAs outstanding which were excluded from the computation of diluted net income per share as those awards would have been antidilutive or were performance awards with performance conditions not yet deemed met. For the year ended January 2, 2022 the Company had 0.5 million options and 0.3 million PSAs outstanding which were excluded from the computation of diluted net income per share as those awards would have been antidilutive or were performance awards with performance conditions not yet deemed met. For the year ended January 3, 2021, the Company had 0.2 million options, 0.1 million RSUs and 0.3 million PSAs outstanding which were excluded from the computation of diluted net income per share as those awards would have been antidilutive or were performance awards with performance conditions not yet deemed met.

**22. Derivative Financial Instruments**

The Company entered into an interest rate swap agreement in December 2017 to manage its cash flow associated with variable interest rates. This forward contract was designated and qualified as a cash flow hedge, and its change in fair value was recorded as a component of other comprehensive income and reclassified into earnings in the same period or periods in which the forecasted transaction occurred. The forward contract consisted of five cash flow hedges, of which none remained outstanding as of January 1, 2023. To qualify as a hedge, the Company needs to formally document, designate and assess the effectiveness of the transactions that receive hedge accounting.

The notional dollar amount of the one outstanding swap at January 2, 2022 was $250.0 million, under which the Company paid a fixed rate and received a variable rate of interest (cash flow swap). The cash flow swap hedged the change in interest rates on debt related to fluctuations in interest rates, had a length of one year and matured in 2022. This interest rate swap had been designated and qualified as a cash flow hedge and had met the requirements to assume zero ineffectiveness. The Company reviewed the effectiveness of its hedging instruments on a quarterly basis. During the first quarter of 2022, the Company elected to apply certain hedge accounting optional expedients allowed under Topic 848. The expedients allowed the Company to continue the method of assessing effectiveness as documented in the original hedge documentation and allowed the reference rate on the hypothetical derivative to match the reference rate on the hedging instrument.

The counterparties to these derivative financial instruments were major financial institutions. The Company evaluated the credit ratings of the financial institutions and believed that credit risk was at an acceptable level.

The following table summarizes the fair value of the Company's derivative instruments:

---

| | | | |
|:---|:---|:---|:---|
|  |  | **As Of** | **As Of** |
|  | **Balance Sheet Location** | **January 1, 2023** | **January 2, 2022** |
| &nbsp;&nbsp;&nbsp;&nbsp;Interest rate swaps | Accrued liabilities | $— | $5107 |

---

The gain or loss on these derivative instruments was recognized in other comprehensive income, net of tax, with the portion related to current period interest payments reclassified to interest expense, net on the consolidated statements of income. The following table summarizes these losses for 2022, 2021 and 2020:

---

| | | | |
|:---|:---|:---|:---|
|  | **Year Ended** | **Year Ended** | **Year Ended** |
|  | **January 1, 2023** | **January 2, 2022** | **January 3, 2021** |
| **Consolidated Statements of<br> Income Classification** |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Interest expense, net | $2021 | $5778 | $4307 |

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**23. Comprehensive Income**

The following table presents the changes in accumulated other comprehensive income (loss) for the year ended January 1, 2023:

---

| | |
|:---|:---|
|  | **Cash Flow<br>Hedges** |
| **Balance at January 3, 2021** | $(8474) |
| Other comprehensive income (loss), net of tax |  |
| Unrealized gains on cash flow hedging activities, net of income tax of $3,116 | 9009 |
| Reclassification of net losses on cash flow hedges to net income, net of income <br>&nbsp;&nbsp;&nbsp;&nbsp;tax of ($1485) | (4293) |
| &nbsp;&nbsp;&nbsp;&nbsp;Total other comprehensive income (loss) | 4716 |
| **Balance at January 2, 2022** | $(3758) |
| Other comprehensive income (loss), net of tax |  |
| Unrealized gains on cash flow hedging activities, net of income tax of $1,819 | 5259 |
| Reclassification of net losses on cash flow hedges to net income, net of income <br>&nbsp;&nbsp;&nbsp;&nbsp;tax of ($520) | (1501) |
| &nbsp;&nbsp;&nbsp;&nbsp;Total other comprehensive income (loss) | 3758 |
| **Balance at January 1, 2023** | $— |

---

Amounts reclassified from accumulated other comprehensive income (loss) to net income are included within interest expense, net on the consolidated statements of income.

**24. Fair Value Measurements**

The Company records its financial assets and liabilities in accordance with the framework for measuring fair value in accordance with GAAP. This framework establishes a fair value hierarchy that prioritizes the inputs used to measure fair value:

Level 1: Quoted prices for identical instruments in active markets.

Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

Level 3: Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

Fair value measurements of nonfinancial assets and nonfinancial liabilities are primarily used in the valuation of derivative instruments and the impairment analysis of goodwill, intangible assets, and long-lived assets.

The following tables present the Company's fair value hierarchy for the Company's financial assets and liabilities measured at fair value on a recurring basis as of January 1, 2023 and January 2, 2022:

---

| | | | | |
|:---|:---|:---|:---|:---|
| **January 1, 2023** | **Level 1** | **Level 2** | **Level 3** | **Total** |
| &nbsp;&nbsp;&nbsp;&nbsp;Long-term debt | $— | $250000 | $— | $250000 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total financial liabilities | $— | $250000 | $— | $250000 |
| **January 2, 2022** | **Level 1** | **Level 2** | **Level 3** | **Total** |
| &nbsp;&nbsp;&nbsp;&nbsp;Long-term debt | $— | $250000 | $— | $250000 |
| &nbsp;&nbsp;&nbsp;&nbsp;Interest rate swap liability |  | 5107 |  | 5107 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total financial liabilities | $— | $255107 | $— | $255107 |

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The Company's interest rate swaps are considered Level 2 in the hierarchy and are valued using an income approach. Expected future cash flows are converted to a present value amount based on market expectations of the yield curve on floating interest rates, which is readily available on public markets.

The determination of fair values of certain tangible and intangible assets for purposes of the Company's goodwill or long-lived asset impairment evaluation as described above is based upon Level 3 inputs. When necessary, the Company uses third party market data and market participant assumptions to derive the fair value of its asset groupings, which primarily include right-of-use lease assets and property and equipment. For further details, see Note 3, "Significant Accounting Policies – Impairment of Long-lived Assets".

Cash, cash equivalents, and restricted cash, accounts receivable, prepaid expenses and other current assets, accounts payable, accrued liabilities, and accrued salaries and benefits approximate fair value because of the short maturity of those instruments. Based on comparable open market transactions, the fair value of the long-term debt approximated carrying value as of January 1, 2023 and January 2, 2022.

**25. Segments**

The Company has one reportable and one operating segment, healthy grocery stores.

In accordance with ASC 606, the following table represents a disaggregation of revenue for 2022, 2021 and 2020.

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **Year Ended** | **Year Ended** | **Year Ended** | **Year Ended** | **Year Ended** | **Year Ended** |
|  | **January 1, 2023** | **January 1, 2023** | **January 2, 2022** | **January 2, 2022** | **January 3, 2021** | **January 3, 2021** |
| Perishables | $3717642 | 58.0% | $3518181 | 57.7% | $3700878 | 57.2% |
| Non-Perishables | 2686581 | 42.0% | 2581688 | 42.3% | 2767881 | 42.8% |
| &nbsp;&nbsp;&nbsp;&nbsp;Net Sales | $6404223 | 100.0% | $6099869 | 100.0% | $6468759 | 100.0% |

---

The Company categorizes the varieties of products it sells as perishable and non-perishable. Perishable product categories include produce, meat, seafood, deli, bakery, floral and dairy and dairy alternatives. Non-perishable product categories include grocery, vitamins and supplements, bulk items, frozen foods, beer and wine, and natural health and body care.

**26. Share-Based Compensation** 

**2022 Incentive Plan**

In March 2022, the Company's board of directors adopted the Sprouts Farmers Market, Inc. 2022 Omnibus Incentive Compensation Plan (the "2022 Incentive Plan"), which became effective May 25, 2022, upon approval by the Company's stockholders. The 2022 Incentive Plan provides team members of the Company, certain consultants and advisors who perform services for the Company, and non-employee members of the Company's board of directors with the opportunity to receive grants of equity awards, including stock options, RSUs, PSAs, and other stock-based awards. The 2022 Incentive Plan replaced the 2013 Incentive Plan (as described below).

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**Awards Granted under the 2022 Incentive Plan**

The Company granted the following awards during 2022 under the 2022 Incentive Plan:

---

| | | | |
|:---|:---|:---|:---|
| **Grant Date** | **RSUs** | **PSAs** | **Options** |
| June 7, 2022 | 58057 |  |  |
| September 7, 2022 | 21598 |  |  |
| October 10, 2022 | 6506 |  |  |
| Total | 86161 |  |  |
| Weighted-average grant date fair value | $27.74 | $— | $— |
| Weighted-average exercise price |  |  |  |

---

The aggregate number of shares of common stock that may be issued to team members and directors under the 2022 Incentive Plan may not exceed 6,600,000, subject to the following adjustments. If any awards granted under the 2022 Incentive Plan, terminate, expire, or are cancelled, forfeited, exchanged, or surrendered without having been exercised, vested or paid in shares, the shares will again be available for purposes of the 2022 Incentive Plan. In addition, the number of shares subject to outstanding awards under the Sprouts Farmers Market, Inc. 2013 Incentive Plan (the "2013 Incentive Plan") that terminate, expire, are paid in cash, or are cancelled, forfeited, exchanged, or surrendered without having been exercised, vested, or paid in shares under the 2013 Incentive Plan after the effective date of the 2022 Incentive Plan will be available for issuance under the 2022 Incentive Plan. As of January 1, 2023, there were 86,161 stock awards outstanding and 6,623,638 shares remaining available for issuance under the 2022 Incentive Plan.

**2013 Incentive Plan** 

Prior to the adoption of the 2022 Incentive Plan, the 2013 Incentive Plan served as the umbrella plan for the Company's share-based and cash-based incentive compensation programs for its directors, officers and other team members. Upon stockholder approval of the 2022 Incentive Plan on May 25, 2022, no further awards will be granted under the 2013 Incentive Plan, but awards outstanding under the 2013 Incentive Plan will remain outstanding in accordance with their terms and the terms of the 2013 Incentive Plan.

**Awards Granted under the 2013 Incentive Plan**

The Company granted the following awards during 2022 and 2021 under the 2013 Incentive Plan:

---

| | | | |
|:---|:---|:---|:---|
| **Grant Date** | **RSUs** | **PSAs** | **Options** |
| March 15, 2022 | 370177 | 147846 | 211352 |
| March 21, 2022 | 104913 | 14260 | 20270 |
| Total | 475090 | 162106 | 231622 |
| Weighted-average grant date fair value | $31.60 | $31.52 | $10.58 |
| Weighted-average exercise price |  |  | $31.52 |

---

---

| | | | |
|:---|:---|:---|:---|
| **Grant Date** | **RSUs** | **PSAs** | **Options** |
| March 16, 2021 | 356503 | 178780 | 404016 |
| June 9, 2021 | 50839 |  | 6493 |
| September 7, 2021 | 25579 |  | 11128 |
| September 20, 2021 | 168137 |  |  |
| Total | 601058 | 178780 | 421637 |
| Weighted-average grant date fair value | $24.11 | $24.42 | $7.66 |
| Weighted-average exercise price |  |  | $24.45 |

---

The RSUs generally vest either one-third each year for three years or one-half each year for two years for team members. RSUs granted to independent members of the Company's board of directors cliff vest in one year. The options expire seven years from grant date. The PSAs are described below.

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**Stock Options**

Outstanding options only become immediately vested in the event of a change in control (as defined in the applicable team member award agreement) if the grants are not continued or assumed by the acquirer on a substantially equivalent basis. If the options and awards continue or are assumed on a substantially equivalent basis, but employment is terminated by the Company or an acquirer without cause or by the team member for good reason (as such terms are defined in the applicable team member award agreement) within 24 months following the change in control, such options or awards will become immediately vested upon such termination. Under all other scenarios, the awards continue to vest per the schedule outlined in the applicable award agreement.

Shares issued for option exercises are newly issued shares.

The estimated weighted average fair values of options granted during 2022, 2021 and 2020 were $10.58, $7.66 and $4.94, respectively, and were calculated using the following assumptions in the table below:

---

| | | | |
|:---|:---|:---|:---|
|  | **2022** | **2021** | **2020** |
| Dividend yield | 0.00% | 0.00% | 0.00% |
| Expected volatility | 36.59% | 36.35% | 34.80% |
| Risk free interest rate | 2.12% | 0.83% | 0.46% |
| Expected term, in years | 4.50 | 4.50 | 4.50 |

---

The grant date weighted average fair value of the 1.0 million options issued but not vested as of January 1, 2023 was $6.66. The grant date weighted average fair value of the 1.1 million options issued but not vested as of January 2, 2022 was $5.81. The grant date weighted average fair value of the 1.1 million options issued but not vested as of January 3, 2021 was $5.00.

The following table summarizes grant date weighted average fair value of options granted and options forfeited:

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| | | | |
|:---|:---|:---|:---|
|  | **Year Ended** | **Year Ended** | **Year Ended** |
|  | **January 1, 2023** | **January 2, 2022** | **January 3, 2021** |
| Grant date weighted average fair value of options granted | $10.58 | $7.66 | $4.94 |
| Grant date weighted average fair value of options forfeited | $8.66 | $7.10 | $8.94 |

---

Expected volatility for option grants and modifications are calculated based upon the Company's historical volatility data over a time frame consistent with the expected life of the awards. The expected term is estimated based on the expected period that the options are anticipated to be outstanding after initial grant until exercise or expiration based upon various factors including the contractual terms of the awards and vesting schedules. The expected risk-free rate is based on the U.S. Treasury yield curve rates in effect at the time of the grant using the term most consistent with the expected life of the award. Dividend yield was estimated at zero as the Company does not anticipate making regular future distributions to stockholders. The total intrinsic value of options exercised was $1.8 million, $0.7 million, and $0.2 million for 2022, 2021 and 2020, respectively.

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The following table summarizes option activity during 2022:

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| | | | | |
|:---|:---|:---|:---|:---|
|  | **Number of<br>Options** | **Weighted<br>Average<br>Exercise<br>Price** | **Weighted<br>Average<br>Remaining<br>Contractual<br>Life (In Years)** | **Aggregate<br>Intrinsic<br>Value** |
| Outstanding at January 2, 2022 | 1362907 | $19.81 |  |  |
| Granted | 231622 | 31.52 |  |  |
| Forfeited | (57862) | 28.79 |  |  |
| Exercised | (218509) | 23.08 |  | $1828 |
| Outstanding at January 1, 2023 | 1318158 | 20.93 | 4.73 | $13295 |
| Exercisable—January 1, 2023 | 271632 | 19.35 | 4.38 | $3142 |
| Vested/Expected to vest—January 1, 2023 | 1318158 | $20.93 | 4.73 | $13295 |

---

**RSUs**

Outstanding RSUs only become immediately vested in the event of a change in control (as defined in the applicable team member award agreement) if the awards are not continued or assumed by the acquirer on a substantially equivalent basis. If the awards continue or are assumed on a substantially equivalent basis, but employment is terminated by the Company or an acquirer without cause or by the team member for good reason (as such terms are defined in the applicable team member award agreement) within 24 months following the change in control, such awards will become immediately vested upon such termination. Under all other scenarios, the awards continue to vest per the schedule outlined in the applicable award agreement.

Shares issued for RSU vesting are newly issued shares.

The fair value for restricted stock units is calculated based on the closing stock price on the date of grant. The total grant date fair value of RSUs vested during 2022, 2021 and 2020 was $9.2 million, $8.8 million and $7.8 million, respectively.

The following table summarizes the weighted average grant date fair value of RSUs awarded during 2022, 2021 and 2020:

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| | | | |
|:---|:---|:---|:---|
|  | **Year Ended** | **Year Ended** | **Year Ended** |
|  | **January 1, 2023** | **January 2, 2022** | **January 3, 2021** |
| RSUs awarded | $31.01 | $24.11 | $18.01 |

---

The following table summarizes RSU activity during 2022:

---

| | | |
|:---|:---|:---|
|  | **Number of<br>RSUs** | **Weighted<br>Average<br>Grant Date<br>Fair Value** |
| Outstanding at January 2, 2022 | 928672 | $21.89 |
| Awarded | 561251 | 31.01 |
| Vested | (428783) | 21.46 |
| Forfeited | (88557) | 26.62 |
| Outstanding at January 1, 2023 | 972583 | $26.94 |

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**PSAs** 

PSAs granted in March 2018 were subject to the Company achieving certain earnings before interest and taxes ("EBIT") performance targets for the 2020 fiscal year. The criteria is based on a range of performance targets in which grantees may earn 0% to 200% of the base number of awards granted. The performance conditions with respect to 2020 EBIT were deemed to have been met, and the PSAs vested on the third anniversary of the grant date (March 2021). During the year ended January 2, 2022, 31,544 of the 2018 PSAs vested. There were no outstanding 2018 PSAs as of January 1, 2023.

PSAs granted in 2019 were subject to the Company achieving certain EBIT performance targets for the 2021 fiscal year. The criteria is based on a range of performance targets in which grantees may earn 0% to 200% of the base number of awards granted. The performance conditions with respect to fiscal year 2021 EBIT were deemed to have been met, and the PSAs vested at the maximum pay out level on the third anniversary of the grant date (March 2022). During the year ended January 1, 2023, 208,172 of the 2019 PSAs vested. There were no outstanding 2019 PSAs as of January 1, 2023.

PSAs granted in 2020 were subject to the Company achieving certain earnings before taxes ("EBT") performance targets for the 2022 fiscal year. The criteria is based on a range of performance targets in which grantees may earn 0% to 200% of the base number of awards granted. Subsequent to January 1, 2023, the performance conditions with respect to 2022 EBT were deemed to have been met, and the PSAs will vest at the maximum pay out level on the third anniversary of the grant date (March 2023).

PSAs granted in 2021 are subject to the Company achieving certain EBIT performance targets for the 2023 fiscal year. The criteria is based on a range of performance targets in which grantees may earn 0% to 200% of the base number of awards granted. If performance conditions are met, the applicable number of performance shares will vest on the third anniversary of the grant date (March 2024).

PSAs granted in 2022 are subject to the Company achieving certain EBIT performance targets for

the 2024 fiscal year. The criteria is based on a range of performance targets in which grantees may earn

0% to 200% of the base number of awards granted. If performance conditions are met, the applicable

number of performance shares will vest on the third anniversary of the grant date (March 2025).

The PSAs only become immediately vested in the event of a change in control (as defined in the applicable team member award agreement) if the awards are not continued or assumed by the acquirer on a substantially equivalent basis. If the awards continue or are assumed on a substantially equivalent basis, but employment is terminated by the Company or an acquirer without cause or by the team member for good reason (as such terms are defined in the applicable team member award agreement) within 24 months following the change in control, such awards will become immediately vested upon such termination. Under all other scenarios, the awards continue to vest per the schedule outlined in the applicable team member award agreement.

Shares issued for PSA vesting are newly issued shares.

The fair value for PSAs is calculated based on the closing stock price on the date of grant.

The total grant date fair value of PSAs granted during 2022 was $5.1 million. The total grant date fair value of PSAs vested during 2022 was $4.1 million. The total grant date fair value of performance shares forfeited or not earned during 2022 was $0.8 million. The total grant date fair value of the 0.5 million PSAs issued but not released as of January 1, 2023 was $11.1 million.

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The total grant date fair value of PSAs granted during 2021 was $4.8 million. The total grant date fair value of PSAs vested during 2021 was $0.8 million. The total grant date fair value of performance shares forfeited or not earned during 2021 was $1.0 million. The total grant date fair value of the 0.4 million PSAs issued but not released as of January 2, 2022 was $8.9 million.

The total grant date fair value of PSAs granted during 2020 was $3.3 million. The total grant date fair value of PSAs vested during 2020 was $0.6 million. The total grant date fair value of performance shares forfeited or not earned during 2020 was $0.3 million. The total grant date fair value of the 0.3 million PSAs issued but not released as of January 3, 2021 was $5.8 million.

The following table summarizes PSA activity during 2022:

---

| | | |
|:---|:---|:---|
|  | **Number of<br>PSAs** | **Weighted<br>Average<br>Grant Date<br>Fair Value** |
| Outstanding at January 2, 2022 | 432729 | $20.51 |
| Awarded | 162106 | 31.52 |
| Vested | (208172) | 19.85 |
| Forfeited | (30643) | 26.76 |
| PSAs earned | 104086 | 19.85 |
| PSAs not earned |  |  |
| Outstanding at January 1, 2023 | 460106 | $24.12 |

---

**RSAs** 

The fair value of RSAs is based on the closing price of the Company's common stock on the grant date. RSAs either vested ratably over a seven quarter period beginning on December 31, 2016, cliff vested on June 30, 2018, or vested annually over three years.

Shares issued for RSA vesting were newly issued shares. The fair value for restricted stock awards was calculated based on the closing stock price on the date of grant.

There were no RSAs granted during 2022, 2021 or 2020. There were no RSAs released in 2022 or 2021. The total grant date fair value of shares of restricted stock released upon vesting during 2020 was $1.0 million. There were no RSAs forfeited in 2022, 2021 or 2020. There were no outstanding RSAs as of January 1, 2023.

**Share-Based Compensation Expense**

The Company presents share-based compensation expense in selling, general and administrative expenses on the Company's consolidated statements of income. The amount recognized was as follows:

---

| | | | |
|:---|:---|:---|:---|
|  | **Year Ended** | **Year Ended** | **Year Ended** |
|  | **January 1, 2023** | **January 2, 2022** | **January 3, 2021** |
| Share-based compensation expense | $16603 | $15883 | $14339 |
| Income tax benefit | (2495) | (2450) | (2662) |
| Net share-based compensation expense | $14108 | $13433 | $11677 |

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As of January 1, 2023, total unrecognized compensation expense and remaining weighted average recognition period related to outstanding share-based awards were as follows:

---

| | | |
|:---|:---|:---|
|  | **Unrecognized<br>compensation<br>expense** | **Remaining<br>weighted<br>average <br>recognition<br>period** |
| Options | $3014 | 0.8 |
| RSUs | 15992 | 1.5 |
| PSAs | 2112 | 1.2 |
| Total unrecognized compensation expense at January 1, 2023 | $21118 |  |

---

During 2022, 2021 and 2020, the Company received $5.0 million, $2.2 million and $1.3 million in cash proceeds from the exercise of options, respectively.

The Company recorded tax benefits of $1.7 million and $0.2 million during 2022 and 2021, respectively, and recorded tax detriments of $0.5 million during 2020, resulting from share-based awards.

**27. Quarterly Financial Data (Unaudited)**

The Company identified an error in the financing activities section of its consolidated statements of cash flows for the thirteen weeks ended April 3, 2022, the twenty-six weeks ended July 3, 2022, and the thirty-nine weeks ended October 2, 2022, related to the presentation of proceeds from and repayments of borrowings associated with a modification of the Company's revolving credit facility on March 25, 2022. The correction did not have any impact on the previously reported consolidated balance sheets, statements of income, or statements of comprehensive income for any of the impacted periods, nor did it have any impact on total cash flows from operating activities, or used in investing or financing activities for any of the impacted periods. Although the Company has determined that the item did not have a material impact on its previously issued consolidated financial statements, the Company will revise its 2022 quarterly financial statements in conjunction with the issuance of its quarterly filings on Form 10-Q for the thirteen, twenty-six, and thirty-nine week periods ended April 2, 2023, July 2, 2023, and October 1, 2023, respectively. The revised quarterly financial statements will reflect the proceeds from borrowings under the revolving credit facility of $62.5 million as a cash inflow from financing activities and the repayments of borrowings under the revolving credit facility of $62.5 million as a cash outflow from financing activities.

**28. Subsequent Events**

In February 2023, the Company's board of directors approved the closing of 11 stores. The closure of these stores will result in an estimated charge in the range of $30 million to $40 million in total, the majority of which will relate to the impairment of leasehold improvements and right-of-use assets and will be reflected in the Company's consolidated financial statements for the first quarter of fiscal 2023. Other associated costs including accelerated depreciation, severance and exit costs are included in that estimate and will be primarily recognized in the first half of fiscal 2023.

See Note 13, "Long-Term Debt and Finance Lease Liabilities" and Note 20, "Capital Stock" for information on additional subsequent events.

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**Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure** 

None.

**Item 9A. Controls and Procedures** 

**Evaluation of Disclosure Controls and Procedures** 

We maintain a system of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) designed to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and is accumulated and communicated to our management, including our Chief Executive Officer (our principal executive officer) and our Chief Financial Officer (our principal financial officer), as appropriate, to allow timely decisions regarding required disclosure.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures under the Exchange Act as of January 1, 2023, the end of the period covered by this Annual Report on Form 10-K. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of January 1, 2023, our disclosure controls and procedures were effective.

**Management's Annual Report on Internal Control Over Financial Reporting** 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we assessed the effectiveness of our internal control over financial reporting as of January 1, 2023, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (2013 Framework). Based on this assessment, our management has concluded that our internal control over financial reporting was effective as of January 1, 2023.

PricewaterhouseCoopers LLP, our independent registered public accounting firm, assessed the effectiveness of our internal control over financial reporting as of January 1, 2023, as stated in the firm's report which is included with the consolidated financial statements in Item 8 of this Annual Report on Form 10-K.

**Changes in Internal Control Over Financial Reporting** 

There were no changes in our internal control over financial reporting that occurred during the quarterly period ended January 1, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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**Item 9B. Other Information** 

Second Amended and Restated Bylaws

On February 28, 2023, our board adopted and approved the second amended and restated bylaws (the "Bylaws"), effective February 28, 2023, to:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Require any stockholder delivering a director nomination notice to comply with Rule 14a-19(a) under the Exchange Act, certify that such stockholder has met the requirements of Rule 14a-19(a) and deliver reasonable evidence of such compliance to the Company;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Require that the information provided in any director nomination notice or notice for any other business be updated and supplemented, if necessary, to be true and correct as of (i) the record date of the stockholder meeting and (ii) the date that is ten business days prior to the date of the stockholder meeting;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Require stockholders nominating director candidates and any proposed nominee, or stockholders proposing other business, to furnish any additional information as may be reasonably required for the Board's review within ten business days after it has been requested by the Board;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Clarify that, if after a stockholder delivers a director nomination notice, such stockholder subsequently fails either (i) to comply with the requirements of Rule 14a-19 or (ii) provide satisfactory evidence of compliance to the Company, then such stockholder's nomination(s) will be deemed null and void;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Require that a stockholder directly or indirectly soliciting proxies from other stockholders use a proxy card color other than white; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Reflect updates to requirements about adjournment procedures and stockholder lists at stockholder meetings, consistent with recent amendments to the Delaware General Corporation Law.

The foregoing description of the Bylaws does not purport to be complete and is qualified in its entirety by reference to the complete text of the Bylaws, filed as Exhibit 3.2 to this Annual Report on Form 10-K and incorporated herein by reference.

Annual Bonus Plan

On February 28, 2023, the Compensation Committee of our board (the "Compensation Committee") approved the Sprouts Farmers Market, Inc. Annual Bonus Plan (the "Cash Plan"). The Cash Plan provides a means of rewarding employees designated as Participants with cash awards based on the performance of the Company and, where appropriate, a Participant's personal performance ("Awards"). A copy of the Cash Plan is being filed as Exhibit 10.12 to this Annual Report on Form 10-K, and the following summary is qualified in its entirety by the provisions of the Cash Plan. Capitalized terms used without definition have the meanings set out in the Cash Plan.

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The Cash Plan shall be administered by, for each Participant that is an executive officer, the Compensation Committee, and for other Participants, the Chief Executive Officer of the Company or other executive designated by the Chief Executive Officer (the "Administrator"). The Administrator shall determine the Participants for each Performance Period, each Participant's Target Award and the applicable Performance Goals. Performance Periods under the Cash Plan shall be the fiscal year of the Company or any other period designated by the Administrator with respect to which an Award may be earned. For any Performance Period, the Performance Goals selected by the Administrator may be goals of the Company or the Participant, measured either individually, alternatively or in any combination, and measured on an absolute basis or relative to one or more peer companies or indices or any combination thereof. The criteria for the Performance Goals may include one or more of the criteria included in the Cash Plan or such other criteria selected by the Administrator. A Participant will be eligible to earn an Award for a Performance Period based on his or her Target Award and the level of achievement of the Performance Goals; provided that the Administrator may increase or decrease the amount payable pursuant to an Award in its sole discretion.

The Administrator shall determine achievement of the Performance Goals and the Award, if any, that will be paid by the Company to each Participant, as soon as practicable following the final determination of the Company's financial results for the relevant Performance Period. Payment of the Awards determined by the Administrator shall be made in or around March of the calendar year immediately following the last day of the relevant Performance Period. The Administrator may permit a Participant to defer receipt of an Award, consistent with the applicable requirements of Section 409A of the Code. No Participant shall have any right to receive payment of an Award under the Cash Plan for a Performance Period unless the Participant remains in the employ of the Company through the payment date for the Award unless otherwise determined by the Administrator.

The Cash Plan is an unfunded incentive compensation plan and has no set expiration date. The Compensation Committee may amend or terminate the Cash Plan at any time.

**Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspection**

Not Applicable.

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**PART III** 

**Item 10. Directors, Executive Officers and Corporate Governance** 

The information required by this item will be contained in our definitive Proxy Statement to be filed with the SEC in connection with our 2023 Annual Meeting of Stockholders (referred to as the "Proxy Statement"), which is expected to be filed not later than 120 days after the end of our fiscal year ended January 1, 2023, and is incorporated herein by reference.

We have adopted a Code of Ethics – Principal Executive Officer and Senior Financial Officers (referred to as the "Code") that applies to our principal executive officer, principal financial officer and principal accounting officer and controller. The Code is publicly available on our website at https://investors.sprouts.com/esg/governance-documents/.

We will provide disclosure of future updates, amendments or waivers from the Code by posting them to our investor relations website located at investors.sprouts.com. The information contained on or accessible through our website is not incorporated by reference into this Annual Report on Form 10-K.

**Item 11. Executive Compensation** 

The information required by this Item will be set forth in the Proxy Statement and is incorporated herein by reference.

**Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters** 

The information required by this Item will be set forth in the Proxy Statement and is incorporated herein by reference.

**Item 13. Certain Relationships and Related Transactions, and Director Independence** 

The information required by this Item will be set forth in the Proxy Statement and is incorporated herein by reference.

**Item 14. Principal Accountant Fees and Services** 

The information required by this Item will be set forth in the Proxy Statement and is incorporated herein by reference.

**PART IV** 

**Item 15. Exhibits and Financial Statement Schedules** 

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)Documents filed as part of this report:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.Financial Statements: The information concerning our financial statements and Report of Independent Registered Public Accounting Firm required by this Item is incorporated by reference herein to the section of this Annual Report on Form 10-K in Item 8, titled "Financial Statements and Supplementary Data."

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.Financial Statement Schedules: No schedules are required.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.Exhibits: See Item 15(b) below.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)Exhibits:

---

| | |
|:---|:---|
| &nbsp;&nbsp;&nbsp;Exhibit<br><u>Number</u> | &nbsp;&nbsp;&nbsp;<u>Description</u> |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.1 | &nbsp;&nbsp;[<u>Plan of Conversion of Sprouts Farmers Markets, LLC (1)</u>](https://www.sec.gov/Archives/edgar/data/1575515/000119312513306993/d530104dex21.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.1 | &nbsp;&nbsp;[<u>Certificate of Incorporation of Sprouts Farmers Market, Inc. (1)</u>](https://www.sec.gov/Archives/edgar/data/1575515/000119312513306993/d530104dex31.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.2 | &nbsp;&nbsp;[<u>Second Amended and Restated Bylaws of Sprouts Farmers Market, Inc.</u>](sfm-ex3_2.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.1 | &nbsp;&nbsp;[<u>Description of Sprouts Farmers Market, Inc. Securities</u>](sfm-ex4_1.htm) |
| &nbsp;&nbsp; 10.1\* | &nbsp;&nbsp;[<u>Sprouts Farmers Market, Inc. 2013 Incentive Plan, amended as of May 1, 2015 (2)</u>](https://www.sec.gov/Archives/edgar/data/1575515/000119312515172028/d918280dex104.htm) |
| &nbsp;&nbsp; 10.1.1\* | &nbsp;&nbsp;[<u>Form of Stock Option Agreement under Sprouts Farmers Market, Inc. 2013 Incentive Plan (3)</u>](https://www.sec.gov/Archives/edgar/data/1575515/000119312515177151/d907343dex101.htm) |
| &nbsp;&nbsp; 10.1.2(a)\* | &nbsp;&nbsp;[<u>Form of Restricted Stock Unit Agreement under Sprouts Farmers Market, Inc. 2013 Incentive Plan (3)</u>](https://www.sec.gov/Archives/edgar/data/1575515/000119312514300800/d747978dex102.htm) |
| &nbsp;&nbsp; 10.1.2(b)\* | &nbsp;&nbsp;[<u>2019 Form of Restricted Stock Unit Agreement under Sprouts Farmers Market, Inc. 2013 Incentive Plan for Chief Executive Officer (4)</u>](https://www.sec.gov/Archives/edgar/data/1575515/000156459019027716/sfm-ex101_11.htm) |
| &nbsp;&nbsp; 10.1.2(c)\* | &nbsp;&nbsp;[<u>2021 Form of Restricted Stock Unit Agreement under Sprouts Farmers Market, Inc. 2013 Incentive Plan for Chief Financial Officer (5)</u>](https://www.sec.gov/Archives/edgar/data/0001575515/000095017021001862/sfm-20210919ex10_2.htm) |
| &nbsp;&nbsp; 10.1.2(d)\* | &nbsp;&nbsp;[<u>2022 Form of Restricted Stock Unit Agreement under Sprouts Farmers Market, Inc. 2013 Incentive Plan for President and Chief Operating Officer (6)</u>](https://www.sec.gov/Archives/edgar/data/1575515/000095017022001992/sfm-ex10_2.htm) |
| &nbsp;&nbsp; 10.1.3(a)\* | &nbsp;&nbsp;[<u>2018 Form of Performance Share Award Agreement under Sprouts Farmers Market, Inc. 2013 Incentive Plan (7)</u>](https://www.sec.gov/Archives/edgar/data/1575515/000156459018010515/sfm-ex101_211.htm) |
| &nbsp;&nbsp; 10.1.3(b)\* | &nbsp;&nbsp;[<u>2019 Form of Performance Share Award Agreement under Sprouts Farmers Market, Inc. 2013 Incentive Plan (8)</u>](https://www.sec.gov/Archives/edgar/data/1575515/000156459019015058/sfm-ex101_336.htm) |
| &nbsp;&nbsp; 10.1.3(c)\* | &nbsp;&nbsp;[<u>2019 Form of Performance Share Award Agreement under Sprouts Farmers Market, Inc. 2013 Incentive Plan for Chief Executive Officer (4)</u>](https://www.sec.gov/Archives/edgar/data/1575515/000156459019027716/sfm-ex102_6.htm) |
| &nbsp;&nbsp; 10.1.3(d)\* | &nbsp;&nbsp;[<u>2020 Form of Performance Share Award Agreement under Sprouts Farmers Market, Inc. 2013 Incentive Plan (9)</u>](https://www.sec.gov/Archives/edgar/data/1575515/000156459020021260/sfm-ex101_192.htm) |
| &nbsp;&nbsp; 10.1.3(e)\* | &nbsp;&nbsp;[<u>2021 Form of Performance Share Award Agreement under Sprouts Farmers Market, Inc. 2013 Incentive Plan (10)</u>](https://www.sec.gov/Archives/edgar/data/1575515/000156459021024974/sfm-ex101_30.htm) |
| &nbsp;&nbsp; 10.1.3(f)\* | &nbsp;&nbsp;[<u>2022 Form of Performance Share Award Agreement under Sprouts Farmers Market, Inc. 2013 Incentive Plan (11)</u>](https://www.sec.gov/Archives/edgar/data/1575515/000095017022007411/sfm-ex10_4.htm) |
| &nbsp;&nbsp; 10.1.4\* | &nbsp;&nbsp;[<u>Form Notice of Amendment to Outstanding Awards granted under the Sprouts Farmers Market, Inc. 2013 Incentive Plan</u> <u>(12)</u>](https://www.sec.gov/Archives/edgar/data/1575515/000095017022010813/sfm-ex10_6.htm) |
| &nbsp;&nbsp; 10.2\* | &nbsp;&nbsp;[<u>Offer Letter, dated August 31, 2021, from Sprouts Farmers Market, Inc. to Lawrence "Chip" Molloy (13)</u>](https://www.sec.gov/Archives/edgar/data/0001575515/000095017021001596/sfm-20210826ex10_1.htm) |
| &nbsp;&nbsp; 10.2.1\* | &nbsp;&nbsp;[<u>Severance Agreement, dated September 19, 2021, by and between Sprouts Farmers Market, Inc. and Lawrence "Chip" Molloy (5)</u>](https://www.sec.gov/Archives/edgar/data/0001575515/000095017021001862/sfm-20210919ex10_1.htm) |
| &nbsp;&nbsp; 10.3† | &nbsp;&nbsp;[<u>Distribution Agreement, dated as of July 18, 2018, by and between SFM, LLC dba Sprouts Farmers Market and KeHE Distributors, LLC (14)</u>](https://www.sec.gov/Archives/edgar/data/1575515/000156459019010453/sfm-ex101_8.htm) |
| &nbsp;&nbsp; 10.4\* | &nbsp;&nbsp;[<u>Form of Indemnification Agreement by and between Sprouts Farmers Market, Inc. and its directors and officers (15)</u>](https://www.sec.gov/Archives/edgar/data/1575515/000119312513211357/d530104dex1012.htm) |

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---

| | |
|:---|:---|
| &nbsp;&nbsp; 10.5 | &nbsp;&nbsp;[<u>Credit Agreement, dated as of March 25, 2022, among Sprouts Farmers Market, Inc., Sprouts Farmers Markets Holdings, LLC, the lenders named therein, Bank of America, N.A., as administrative agent, issuing bank and swingline lender, JPMorgan Chase Bank, N.A., as sustainability structuring agent, BMO Capital Markets Corp., JPMorgan Chase Bank, N.A. and Wells Fargo Securities, LLC as syndication agents, Truist Bank and PNC Bank, N.A. as documentation agents, and BofA Securities, Inc., BMO Capital Markets Corp., JPMorgan Chase Bank, N.A. and Wells Fargo Securities, LLC as joint bookrunners and joint lead arrangers (16)</u>](https://www.sec.gov/Archives/edgar/data/1575515/000095017022004681/sfm-ex10_1.htm) |
| &nbsp;&nbsp; 10.6\* | &nbsp;&nbsp;[<u>Form of Confidentiality, Non-Competition, and Non-Solicitation Agreement (17)</u>](https://www.sec.gov/Archives/edgar/data/1575515/000119312515281086/d939811dex101.htm) |
| &nbsp;&nbsp; 10.7\* | &nbsp;&nbsp;[<u>Amended and Restated Executive Severance and Change in Control Plan (18)</u>](https://www.sec.gov/Archives/edgar/data/1575515/000156459020007831/sfm-ex101_6.htm) |
| &nbsp;&nbsp; 10.8† | &nbsp;&nbsp;[<u>Deli, Cheese, and Bakery Distribution Agreement, dated as of February 12, 2016, by and between SFM, LLC dba Sprouts Farmers Market and KeHE Distributors, LLC (19)</u>](https://www.sec.gov/Archives/edgar/data/1575515/000156459016022522/sfm-ex101_450.htm) |
| &nbsp;&nbsp; 10.9\* | &nbsp;&nbsp;[<u>Offer Letter from Sprouts Farmers Market, Inc., to Nicholas Konat, dated January 25, 2022 (6)</u>](https://www.sec.gov/Archives/edgar/data/1575515/000095017022001992/sfm-ex10_1.htm) |
| &nbsp;&nbsp; 10.10\* | &nbsp;&nbsp;[<u>Letter Agreement between Sprouts Farmers Market, Inc. and Gil Phipps, dated February 18, 2022 (6)</u>](https://www.sec.gov/Archives/edgar/data/1575515/000095017022001992/sfm-ex10_3.htm) |
| &nbsp;&nbsp; 10.10.1\* | &nbsp;&nbsp;[<u>Letter Agreement, dated May 25, 2022, by and between Sprouts Farmers Market and Gil Phipps (12)</u>](https://www.sec.gov/Archives/edgar/data/1575515/000095017022010813/sfm-ex10_1.htm) |
| &nbsp;&nbsp; 10.11\* | &nbsp;&nbsp;[<u>Sprouts Farmers Market, Inc. 2022 Omnibus Incentive Compensation Plan (12)</u>](https://www.sec.gov/Archives/edgar/data/1575515/000095017022010813/sfm-ex10_2.htm) |
| &nbsp;&nbsp;10.11.1(a)\* | &nbsp;&nbsp;[<u>Form of Restricted Stock Unit Agreement under the Sprouts Farmers Market, Inc. 2022 Omnibus Incentive Compensation Plan</u> <u>(12)</u>](https://www.sec.gov/Archives/edgar/data/1575515/000095017022010813/sfm-ex10_3.htm) |
| &nbsp;&nbsp;10.11.1(b)\* | &nbsp;&nbsp;[<u>Form of Restricted Stock Unit Agreement under the Sprouts Farmers Market, Inc. 2022 Omnibus Incentive Compensation Plan for Board of Directors</u>](sfm-ex10_111b.htm) |
| &nbsp;&nbsp; 10.11.2\* | &nbsp;&nbsp;[<u>2022 Form of Performance Share Award Agreement under the Sprouts Farmers Market, Inc. 2022 Omnibus Incentive Compensation Plan</u> <u>(12)</u>](https://www.sec.gov/Archives/edgar/data/1575515/000095017022010813/sfm-ex10_4.htm) |
| &nbsp;&nbsp; 10.11.13\* | &nbsp;&nbsp;[<u>Form of Stock Option Award Agreement under the Sprouts Farmers Market, Inc. 2022 Omnibus Incentive Compensation Plan(12)</u>](https://www.sec.gov/Archives/edgar/data/1575515/000095017022010813/sfm-ex10_5.htm) |
| &nbsp;&nbsp; 10.12\* | &nbsp;&nbsp;[<u>Sprouts Farmers Market, Inc. Annual Bonus Plan</u>](sfm-ex10_12.htm) |
| &nbsp;&nbsp; 21.1 | &nbsp;&nbsp;[<u>List of subsidiaries</u>](sfm-ex21_1.htm) |
| &nbsp;&nbsp; 23.1 | &nbsp;&nbsp;[<u>Consent of PricewaterhouseCoopers LLP, independent registered accounting firm</u>](sfm-ex23_1.htm) |
| &nbsp;&nbsp; 31.1 | &nbsp;&nbsp;[<u>Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002</u>](sfm-ex31_1.htm) |
| &nbsp;&nbsp; 31.2 | &nbsp;&nbsp;[<u>Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002</u>](sfm-ex31_2.htm) |
| &nbsp;&nbsp; 32.1 | &nbsp;&nbsp;[<u>Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002</u>](sfm-ex32_1.htm) |
| &nbsp;&nbsp; 32.2 | &nbsp;&nbsp;[<u>Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002</u>](sfm-ex32_2.htm) |

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| | |
|:---|:---|
| &nbsp;&nbsp;101.INS | &nbsp;&nbsp;Inline XBRL Instance Document |
| &nbsp;&nbsp;101.SCH | &nbsp;&nbsp;Inline XBRL Taxonomy Extension Schema Document |
| &nbsp;&nbsp;101.CAL | &nbsp;&nbsp;Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| &nbsp;&nbsp;101.DEF | &nbsp;&nbsp;Inline XBRL Taxonomy Extension Definition Linkbase Document |
| &nbsp;&nbsp;101.LAB | &nbsp;&nbsp;Inline XBRL Taxonomy Extension Label Linkbase Document |
| &nbsp;&nbsp;101.PRE | &nbsp;&nbsp;Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| &nbsp;&nbsp;104 | &nbsp;&nbsp;Cover Page Interactive Data File (embedded within the Inline XBRL document) |

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† Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment previously submitted separately to the SEC.

\* Management contract or compensatory plan or arrangement.

(1)Filed as an exhibit to Amendment No. 4 to the Registrant's Registration Statement on Form S-1 (File No. 333-188493) filed with the SEC on July 29, 2013, and incorporated herein by reference.

(2)Filed as an exhibit to the Registrant's Current Report on Form 8-K filed with the SEC on May 5, 2015, and incorporated herein by reference.

(3)Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q filed with the SEC on May 7, 2015, and incorporated herein by reference.

(4)Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q filed with the SEC on August 1, 2019, and incorporated herein by reference.

(5)Filed as an exhibit to the Registrant's Current Report on Form 8-K filed with the SEC on September 22, 2021, and incorporated herein by reference.

(6)Filed as an exhibit to the Registrant's Current Report on Form 8-K filed with the SEC on February 24, 2022, and incorporated herein by reference

(7)Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q filed with the SEC on May 3, 2018, and incorporated herein by reference.

(8)Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q filed with the SEC on May 2, 2019, and incorporated herein by reference.

(9)Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q filed with the SEC on May 5, 2020, and incorporated herein by reference.

(10)Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q filed with the SEC on May 6, 2021, and incorporated herein by reference.

(11)Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q filed with the SEC on May 4, 2022, and incorporated herein by reference.

(12)Filed as an exhibit to the Registrant's Current Report on Form 8-K filed with the SEC on May 27, 2022, and incorporated herein by reference.

(13)Filed as an exhibit to the Registrant's Current Report on Form 8-K filed with the SEC on August 31, 2021, and incorporated herein by reference.

(14)Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q/A filed with the SEC on April 1, 2019, and incorporated herein by reference.

(15)Filed as an exhibit to the Registrant's Registration Statement on Form S-1 (File No. 333-188493) filed with the SEC on May 9, 2013, and incorporated herein by reference.

(16)Filed as an exhibit to the Registrant's Current Report on Form 8-K filed with the SEC on March 25, 2022, and incorporated herein by reference.

(17)Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q filed with the SEC on August 6, 2015, and incorporated herein by reference.

(18)Filed as an exhibit to the Registrant's Current Report on Form 8-K filed with the SEC on February 28, 2020, and incorporated herein by reference.

(19)Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q filed with the SEC on August 4, 2016, and incorporated herein by reference.

**Item 16. Form 10-K Summary** 

None.

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**SIGNATURES**

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

---

| | | |
|:---|:---|:---|
|  | **SPROUTS FARMERS MARKET, INC.** | **SPROUTS FARMERS MARKET, INC.** |
| Date: March 2, 2023 | By: | /s/ Lawrence P. Molloy |
|  | Name: | Lawrence P. Molloy |
|  | Title: | Chief Financial Officer |

---

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

---

| | | |
|:---|:---|:---|
| **Signature** | &nbsp;&nbsp;&nbsp;**Title** | &nbsp;&nbsp;&nbsp;&nbsp;**Date** |
| /s/ Jack L. Sinclair<br>Jack L. Sinclair | &nbsp;&nbsp;Director and Chief Executive Officer <br>(Principal Executive Officer) | March 2, 2023 |
| /s/ Lawrence P. Molloy<br>Lawrence P. Molloy | &nbsp;&nbsp;Chief Financial Officer (Principal Financial Officer) | March 2, 2023 |
| /s/ Stacy W. Hilgendorf<br>Stacy W. Hilgendorf | &nbsp;&nbsp;Vice President, Controller (Principal Accounting Officer) | March 2, 2023 |
| /s/ Joseph Fortunato<br>Joseph Fortunato | &nbsp;&nbsp;Chairman of the Board | March 2, 2023 |
| /s/ Joel D. Anderson<br>Joel D. Anderson | &nbsp;&nbsp;Director | March 2, 2023 |
| /s/ Hari K. Avula<br>Hari K. Avula | &nbsp;&nbsp;Director | March 2, 2023 |
| /s/ Kristen E. Blum<br>Kristen E. Blum | &nbsp;&nbsp;Director | March 2, 2023 |
| /s/ Terri Funk Graham<br>Terri Funk Graham | &nbsp;&nbsp;Director | March 2, 2023 |
| /s/ Joseph D. O'Leary<br>Joseph D. O'Leary | &nbsp;&nbsp;Director | March 2, 2023 |
| /s/ Douglas G. Rauch<br>Douglas G. Rauch | &nbsp;&nbsp;Director | March 2, 2023 |

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## Ex-3

**<u>Exhibit 3.2</u>**

SPROUTS FARMERS MARKET, INC.

Incorporated under the laws<br>of the State of Delaware

SECOND AMENDED AND RESTATED BYLAWS

Effective as of February 28, 2023

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

SECOND AMENDED AND RESTATED BYLAWS<br>OF SPROUTS FARMERS MARKET, INC.

ARTICLE I<u><br>OFFICES; BOOKS</u>

1.1Registered Office.

The registered office of Sprouts Farmers Market, Inc. (the "Corporation") in the State of Delaware shall be Corporation Service Company, 2711 Centerville Rd., Suite. 400, New Castle County, Wilmington, DE 19808, and the registered agent in charge thereof shall be The Corporation Service Company.

1.2Other Offices.

The Corporation may also have an office or offices at any other place or places within or outside the State of Delaware.

1.3Books.

The books of the Corporation may be kept within or without the State of Delaware as the Board of Directors of the Corporation (the "Board") may from time to time determine or the business of the Corporation may require.

ARTICLE II<u><br>MEETING OF STOCKHOLDERS; STOCKHOLDERS'<br>CONSENT IN LIEU OF MEETING</u>

2.1Annual Meetings.

The annual meeting of the stockholders for the election of directors, and for the transaction of such other business as may properly come before the meeting, shall be held at such place, if any, date and hour as shall be fixed by the Board and designated in the notice or waiver of notice thereof. In lieu of holding an annual meeting of stockholders at a designated place, the Board may, in its sole discretion, determine that any annual meeting of stockholders may be held solely by means of remote communication.

2.2Special Meetings.

A special meeting of the stockholders for any purpose or purposes may be called as set forth in the Certificate of Incorporation of the Corporation (the "Charter"), to be held at such place, if any, date and hour as shall be designated in the notice or waiver of notice thereof. Business transacted at any special meeting of stockholders shall be limited to the matters stated in the notice. In lieu of holding a

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special meeting of stockholders at a designated place, the Board may, in its sole discretion, determine that any special meeting of stockholders may be held solely by means of remote communication.

2.3Notice of Meetings.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)Except as otherwise required by statute, the Charter, or these Bylaws (the "Bylaws"), notice of each annual or special meeting of the stockholders shall be given to each stockholder of record entitled to vote at such meeting not less than ten (10) nor more than sixty (60) days before the day on which the meeting is to be held, by delivering written notice thereof to each stockholder personally, or by mailing a copy of such notice, postage prepaid, directly to each stockholder at the stockholder's address as it appears in the records of the Corporation, or, with the consent of the stockholder entitled to receive notice, by facsimile or other means of electronic transmission in the manner permitted by applicable law. Every such notice shall state the place, if any (or the means of remote communication, if any, by which stockholders and proxyholders may be deemed to be present and to vote at such meeting), the date and hour of the meeting, and, in case of a special meeting, the purpose or purposes for which the meeting is called. Notice of any meeting of stockholders shall not be required to be given to any stockholder who shall attend such meeting in person or by proxy, unless such stockholder attends for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened, or who shall, in person or by attorney thereunto authorized, waive such notice in writing, either before or after such meeting. Notice of any adjourned meeting of stockholders shall not be required to be given, except when expressly required by law.

2.4Notice of Stockholder Business and Nominations.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)Annual Meeting of Stockholders.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)Nominations of persons for election to the Board and the proposal of any other business to be considered by the stockholders may be made at an annual meeting of stockholders only (A) pursuant to the Corporation's notice of meeting or any supplement thereto, (B) by or at the direction of the Board, or (C) by any stockholder of the Corporation who was a stockholder of record of the Corporation (and, with respect to any beneficial owner, if different, on whose behalf any nomination or proposal is made, only if such beneficial holder was a beneficial owner of shares of the Corporation) both at the time that the notice provided for in paragraph (a)(ii) of this Section 2.4 is delivered to the Secretary of the Corporation and at the time of the meeting, who is entitled to vote at the meeting, and who complies with the notice procedures set forth in paragraph (a)(ii) of this Section 2.4.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)For any nominations by a stockholder of persons for election to the Board and the proposal of any other business to be considered by the stockholders to be properly brought before an annual meeting of stockholders by a stockholder, in each case pursuant to clauses (A) or (C) of paragraph (a)(i) of this Section 2.4, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation and any such proposed business, other than the nominations of persons for election to the Board, must constitute a proper matter for stockholder action. To be timely, a stockholder's notice shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the close of business on the one hundred fiftieth (150th) day and not later than the close of business on the one hundred twentieth (120th) day prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is more than thirty (30) days before or more than seventy (70) days after such anniversary date, notice by the stockholder must be so delivered not earlier than the close of business on the one hundred fiftieth (150th) day prior to such annual meeting and not later than the close of business on the later of (x) the one hundred twentieth (120th) day prior to such annual meeting or (y) the tenth (10th) day following the day on which public announcement of the date of such meeting is first made by the Corporation. For purposes of the first annual meeting of stockholders of the Corporation held after the closing of an initial public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of common stock of the Corporation to the public, the first anniversary of such annual meeting shall be deemed to be on the date so fixed by resolution of the Board prior to such first annual meeting and the notice required by this Section 2.4 shall be considered to be timely with respect to such

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first annual meeting if it shall be delivered to the Secretary of the Corporation at the principal executive offices of the Corporation not later than the close of business on the tenth (10th) day following the day on which public announcement of such date is first made by the Corporation. In no event shall the public announcement of an adjournment or postponement of an annual meeting commence a new time period or extend any time period for the giving of a stockholder's notice as described above. For purposes of this Section 2.4, the stockholder providing the notice of a proposed nomination or other business proposed to be brought before a meeting, the beneficial owner, if different, on whose behalf the proposed nomination or other business proposed to be brought before a meeting is made, and any affiliate or associate of such beneficial owner (as such terms are defined in Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), are collectively referred to as the "Proposing Person." Such stockholder's notice shall set forth (A) as to each person whom the Proposing Person proposes to nominate for election as a director (each, a "Proposed Nominee") (1) all information relating to the Proposed Nominee that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to and in accordance with Regulation 14A under the Exchange Act (including Rule 14a-19 thereunder), (2) the Proposed Nominee's written consent to being named in the proxy statement as a nominee and to serving as a director if elected, (3) a representation and warranty that the Proposed Nominee does not have, and will not have, any undisclosed voting commitments or other arrangements with respect to the Proposed Nominee's actions as a director if elected, (4) a representation and warranty that the Proposing Person has met all of the requirements of these Bylaws and of Rule 14a-19(a) of the Exchange Act (including for the avoidance of doubt Rule 14a-19(a)(3) which provides that "No person may solicit proxies in support of director nominees other than the registrant's nominees unless such person: . . . . Solicits the holders of shares representing at least sixty-seven percent (67%) of the voting power of shares entitled to vote on the election of directors and includes a statement to that effect in the proxy statement or form of proxy.") and shall, not later than five (5) business days prior to the date of the applicable meeting of stockholders, or, if practicable, any adjournment or postponement thereof, deliver to the Secretary at the principal executive offices of the Corporation reasonable documentary evidence of such compliance (as determined by the Secretary of the Corporation in good faith), and (5) a director questionnaire completed by the Proposed Nominee, in a form that will be provided by the Corporation upon written request (which shall address, among other things, the Proposed Nominee's independence), (B) as to any business other than nominations for election of directors that the Proposing Person proposes to bring before the meeting, (1) a brief description of the business desired to be brought before the meeting, (2) the text of the proposal or business (including the text of any resolutions proposed for consideration and in the event that such business includes a proposal to amend the Bylaws of the Corporation, the language of the proposed amendment), (3) the reasons for conducting such business at the meeting, (4) any material interest in such business of each Proposing Person, and (5) a description of any agreements between the Proposing Person and any other person or entity relating to such business, and (C) as to each Proposing Person, (1) the name and address of the stockholder providing the notice, as they appear on the Corporation's books, and of such other Proposing Person, (2) the class and number of shares of capital stock of the Corporation that are owned of record or beneficially by such Proposing Person, (3) a description in reasonable detail of any hedging, derivative, swap or other transaction or series of transactions engaged in by such Proposing Person, or any agreement, arrangement or understanding (including any derivative or short position, profit interests, options, warrants, convertible securities, stock appreciation or similar rights, hedging transactions or any borrowing or lending of shares) to which such Proposing Person is a party, whether or not such instrument or right shall be subject to settlement in underlying shares of capital stock of the Corporation, and in each case, the effect or intent of which is to mitigate loss to, manage the risk or increase or reduce the benefit of share price changes for, or increase or decrease the voting power of, such Proposing Person with respect to shares of capital stock of the Corporation, or otherwise to reduce the economic risk or benefit of ownership of shares of capital stock of the Corporation to such Proposing Person (including where the value of any agreement, arrangement or understanding to which such Proposing Person is a party is determined by reference to the price or value of shares of the Corporation), (4) a representation that the Proposing Person (considered collectively) is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such business or nomination, and (5) a representation as to whether the Proposing Person intends or is part of a group that (a) has delivered or intends to deliver a

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proxy statement and/or form of proxy to holders of at least the percentage of the Corporation's outstanding capital stock required to elect the nominee and/or approve or adopt the proposal or (b) otherwise has solicited or intends to solicit proxies or votes from stockholders in support of such nomination or proposal. The Proposing Person providing notice under this Section 2.4(a)(ii) and, if applicable, the Proposed Nominee for election as a director, shall update and supplement the notice to the Corporation as promptly as practicable, if necessary, so that the information provided or required to be provided in such notice or accompany such notice pursuant to this Section 2.4(a)(ii) shall be true and correct (i) as of the record date for stockholders entitled to vote at such meeting of stockholders and (ii) as of the date that is ten (10) business days prior to such meeting or any adjournment or postponement thereof. Such update and supplement shall be in writing and must be received by the Secretary of the Corporation (x) in the case of the foregoing clause (i), not later than five (5) business days after the record date for stockholders entitled to vote at the meeting, and (y) in the case of the foregoing clause (ii), not later than eight (8) business days prior to the date of the meeting, or any adjournment or postponement thereof. Further, the Board may request any Proposing Person and Proposed Nominee to furnish any additional information as may be reasonably required or appropriate for the Board's review and consideration, and such Proposing Person and/or Proposed Nominee shall provide such additional information within ten (10) business days after it has been requested by the Board. For the avoidance of doubt, the obligation to update and supplement as set forth in this paragraph shall not limit the Corporation's rights with respect to any deficiencies in any notice provided by a stockholder, and any such deficiencies may be grounds for exclusion of the stockholder's nominee. The foregoing notice requirements shall be deemed satisfied by a stockholder if the stockholder has notified the Corporation of the stockholder's intention to present a proposal at an annual meeting in compliance with applicable rules promulgated by the Securities and Exchange Commission (the "SEC") and such stockholder's proposal has been included in a proxy statement that has been prepared by the Corporation to solicit proxies for such annual meeting. The Corporation may require any proposed nominee to furnish such other information as it may reasonably require to determine the eligibility of such proposed nominee to serve as a director of the Corporation. For the avoidance of doubt, if any Proposing Person (i) provides notice pursuant to this Section 2.4(a)(ii) and (ii) subsequently (A) fails to comply with the requirements of Rule 14a-19 of the Exchange Act or (B) fails to provide reasonable evidence sufficient to satisfy the Corporation that such requirements have been met, then such Proposing Person's nomination(s) shall be deemed null and void and the Corporation shall disregard any proxies or votes solicited for any Proposed Nominee.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)Notwithstanding anything in the second sentence of paragraph (a)(ii) of this Section 2.4 to the contrary, in the event that the number of directors to be elected to the Board at an annual meeting is increased and there is no public announcement by the Corporation naming the nominees for any of the additional directorships at least one hundred thirty (130) days prior to the first anniversary of the preceding year's annual meeting, a stockholder's notice required by paragraph (a)(ii) of this Section 2.4 shall also be considered timely, but only with respect to nominees for the additional directorships for which no nominee was named, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the tenth (10th) day following the day on which such public announcement is first made by the Corporation.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)Special Meetings of Stockholders. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation's notice of meeting pursuant to Section 2.2. Nominations of persons for election to the Board may be made at a special meeting of stockholders at which directors are to be elected pursuant to the Corporation's notice of meeting (1) by or at the direction of the Board or (2) provided that the Board has determined that directors shall be elected at such meeting, by any stockholder of the Corporation who is a stockholder of record (and, with respect to any beneficial owner, if different, on whose behalf any nomination or proposal is made, only if such beneficial owner was the beneficial owner of shares of the Corporation) both at the time that the notice provided for in this Section 2.4 is delivered to the Secretary of the Corporation and at the time of the meeting, who is entitled to vote at the meeting and upon such election, and who complies with the notice procedure set forth in Section 2.4(a)(ii) with respect to nominations for election of directors at a regular meeting of stockholders. In the event that the Corporation calls a special meeting of

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stockholders for the purpose of electing one or more directors to the Board, any stockholder otherwise permitted by this Section 2.4 to nominate a person or persons (as the case may be) for election to such position(s) as specified in the Corporation's notice of meeting may nominate such person(s) for election to such position(s) if the stockholder's notice required by paragraph (a)(ii) of this Section 2.4 shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the close of business on the one hundred fiftieth (150th) day prior to such special meeting and not later than the close of business on the later of (x) the one hundred twentieth (120th) day prior to such special meeting or (y) the tenth (10th) day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board to be elected at such meeting. In no event shall the public announcement of an adjournment or postponement of a special meeting commence a new time period or extend any time period for the giving of a stockholder's notice as described above.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)General.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)Only such persons who are nominated for election to the Board in accordance with the procedures set forth in this Section 2.4 and the mandatory provisions of SEC rules (including Rule 14a-19 of the Exchange Act), shall be eligible to be elected at an annual or special meeting of stockholders of the Corporation to serve as directors, and only such other business as shall have been brought before the meeting in accordance with the procedures set forth in this Section 2.4 and the mandatory provisions of SEC rules shall be conducted at an annual meeting of stockholders. Except as otherwise provided by law, the chairperson of the meeting shall have the power and duty (A) to determine whether a nomination or any other business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this Section 2.4, including whether the Proposing Person (x) failed to notify the Corporation of any change in the information previously provided as required by clause (a)(ii) of this Section 2.4 or (y) solicited (or is part of a group that solicited) or did not so solicit, as the case may be, proxies in support of such stockholder's nominee or proposal in compliance with such stockholder's representation as required by clause (a)(ii)(C)(5) of this Section 2.4 and (B) if any nomination or proposed business was not made or proposed in compliance with this Section 2.4, to declare that such nomination or proposal shall be disregarded and declared to be out of order. Notwithstanding the foregoing provisions of this Section 2.4, unless otherwise required by law, if the stockholder (or a qualified representative of the stockholder) does not appear at the annual or special meeting of stockholders of the Corporation to make a nomination or present a proposal of other business, such nomination shall be disregarded and such proposed business shall not be transacted, notwithstanding that proxies in respect of such vote may have been received by the Corporation. For purposes of this Section 2.4, to be considered a qualified representative of the stockholder, a person must be authorized by a writing executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as proxy at the meeting of stockholders and such person must produce such writing or electronic transmission, or a reliable reproduction of the writing or electronic transmission, at the meeting of stockholders.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)For purposes of this Section 2.4, "public announcement" shall include disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the SEC pursuant to Section 13, 14 or 15(d) of the Exchange Act.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)Notwithstanding the foregoing provisions of this Section 2.4, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 2.4. This Section 2.4 is expressly intended to apply to any business proposed to be considered by the stockholders at a meeting, regardless of whether or not such proposal is made pursuant to Rule 14a-8 under the Exchange Act. This Section 2.4 shall not be deemed to affect any rights of (i) stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to such Rule 14a-8 under the Exchange Act or (ii) the holders of any series of Preferred Stock to elect directors pursuant to any applicable provisions of the Charter. In the event of any conflict between this Section 2.4 and the provisions of Rule 14a-8 under the Exchange Act in the circumstances of a stockholder proposal made pursuant to Rule 14a-8, the provisions of Rule 14a-8 shall control.

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2.5Proxy Access.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)Information to be Included in the Corporation's Proxy Materials.

Whenever the Board solicits proxies with respect to the election of directors at an annual meeting of stockholders, subject to the provisions of this Section 2.5, the Corporation shall include in its proxy statement for such annual meeting and on the form of proxy distributed by the Corporation in connection with such annual meeting, in addition to any persons nominated for election by or at the direction of the Board, the name, and in the proxy statement, the Required Information (as defined below), of any person nominated for election (a "Stockholder Nominee") to the Board by an Eligible Stockholder (as defined in Section 2.5(d)) who expressly elects at the time of providing the notice required by this Section 2.5 to have such nominee included in the Corporation's proxy materials pursuant to this Section 2.5. For purposes of this Section 2.5, the "Required Information" that the Corporation will include in its proxy statement is (i) the information provided to the Secretary of the Corporation concerning the Stockholder Nominee and the Eligible Stockholder that is required to be disclosed in the Corporation's proxy statement pursuant to Section 14 of the Exchange Act, and the rules and regulations promulgated thereunder, and (ii) if the Eligible Stockholder so elects, a Supporting Statement (as defined in Section 2.5(h)). For the avoidance of doubt, nothing in this Section 2.5 shall limit the Corporation's ability to solicit against any Stockholder Nominee or include in its proxy materials the Corporation's own statements or other information relating to any Eligible Stockholder or Stockholder Nominee, including any information provided to the Corporation pursuant to this Section 2.5. Any Eligible Stockholder directly or indirectly soliciting proxies from other stockholders must use a proxy card color other than white, which shall be reserved for the exclusive use by the Board.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)Notice Period.

In addition to any other applicable requirements, for a nomination to be made by an Eligible Stockholder pursuant to this Section 2.5, the Eligible Stockholder must have given timely notice thereof (the "Notice of Proxy Access Nomination") in proper written form to the Secretary of the Corporation. To be timely, the Notice of Proxy Access Nomination must be delivered to the Secretary of the Corporation within the time periods applicable to stockholder notices of proposed nominations pursuant to Section 2.4(a)(ii) of these Bylaws. In no event shall the adjournment or postponement of the annual meeting, or the public announcement of such an adjournment or postponement, commence a new time period (or extend any time period) for the giving of a Notice of Proxy Access Nomination pursuant to this Section 2.5.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)Permitted Number of Stockholder Nominees.

The maximum number of Stockholder Nominees nominated by all Eligible Stockholders that will be included in the Corporation's proxy materials with respect to an annual meeting of stockholders shall not exceed the greater of (x) two or (y) twenty percent (20%) of the number of directors in office as of the last day on which a Notice of Proxy Access Nomination may be delivered pursuant to and in accordance with this Section 2.5 (the "Final Proxy Access Nomination Date") or, if such amount is not a whole number, rounded down to the closest whole number below such amount (such number, as it may be adjusted pursuant to this Section 2.5(c), the "Permitted Number").

In the event that one or more vacancies for any reason occurs on the Board after the Final Proxy Access Nomination Date but before the date of the annual meeting and the Board resolves to reduce the size of the Board in connection therewith, the Permitted Number shall be calculated based on the number of directors in office as so reduced.

In addition, the Permitted Number shall be reduced by (i) the number of individuals who will be included in the Corporation's proxy materials as nominees recommended by the Board pursuant to an agreement, arrangement or other understanding with a stockholder or group of stockholders (other than any such agreement, arrangement or understanding entered into in connection with an acquisition of stock from the Corporation by such stockholder or group of stockholders) and (ii) the number of directors

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in office as of the Final Proxy Access Nomination Date who were included in the Corporation's proxy materials as Stockholder Nominees for any of the two (2) preceding annual meetings of stockholders (including any persons counted as Stockholder Nominees pursuant to the immediately succeeding sentence) and (i) who is serving a term not scheduled to expire at the next upcoming annual meeting, or (ii) whom the Board decides to nominate for re-election to the Board at the next upcoming annual meeting. For purposes of determining when the Permitted Number has been reached, any individual nominated by an Eligible Stockholder for inclusion in the Corporation's proxy materials pursuant to this Section 2.5 whose nomination is subsequently withdrawn or whom the Board decides to nominate for election to the Board shall be counted as one of the Stockholder Nominees.

Any Eligible Stockholder submitting more than one Stockholder Nominee for inclusion in the Corporation's proxy materials pursuant to this Section 2.5 shall rank such Stockholder Nominees based on the order in which the Eligible Stockholder desires such Stockholder Nominees to be selected for inclusion in the Corporation's proxy materials in the event that the total number of Stockholder Nominees submitted by Eligible Stockholders pursuant to this Section 2.5 exceeds the Permitted Number. In the event that the number of Stockholder Nominees submitted by Eligible Stockholders pursuant to this Section 2.5 exceeds the Permitted Number, the highest ranking Stockholder Nominee from each Eligible Stockholder who meets the requirements of this Section 2.5 will be selected for inclusion in the Corporation's proxy materials until the Permitted Number is reached, going in order of the amount (largest to smallest) of shares of stock of the Corporation each Eligible Stockholder disclosed as owned in its Notice of Proxy Access Nomination. If the Permitted Number is not reached after the highest ranking Stockholder Nominee from each Eligible Stockholder who meets the requirements of this Section 2.5 has been selected, then the next highest ranking Stockholder Nominee from each Eligible Stockholder who meets the requirements of this Section 2.5 will be selected for inclusion in the Corporation's proxy materials, and this process will continue as many times as necessary, following the same order each time, until the Permitted Number is reached.

Notwithstanding anything to the contrary contained in this Section 2.5, the Corporation shall not be required to include any Stockholder Nominees in its proxy materials pursuant to this Section 2.5 for any meeting of stockholders for which the Secretary of the Corporation receives notice that a stockholder intends to nominate one or more persons for election to the Board pursuant to the advance notice requirements for stockholder nominees set forth in Section 2.4.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)Eligible Stockholder.

An "Eligible Stockholder" is a stockholder or group of no more than 20 stockholders (counting as one stockholder, for this purpose, any two or more funds that are part of the same Qualifying Fund Group (as defined below)) that (i) has owned (as defined in Section 2.5(e)) continuously for at least three years (the "Minimum Holding Period") a number of shares of stock of the Corporation that represents at least three percent (3%) of the voting power of all shares of stock of the Corporation issued and outstanding and entitled to vote in the election of directors, in each case, measured as of the date the Notice of Proxy Access Nomination is received by the Secretary of the Corporation in accordance with this Section 2.5 (the "Required Shares"), (ii) continues to own the Required Shares through the date of the annual meeting and (iii) satisfies all other requirements of, and complies with all applicable procedures set forth in, this Section 2.5.

A "Qualifying Fund Group" means two or more funds that are (A) under common management and investment control, (B) under common management and funded primarily by the same employer or (C) a "group of investment companies" as such term is defined in Section 12(d)(1)(G)(ii) of the Investment Company Act of 1940, as amended.

Whenever the Eligible Stockholder consists of a group of stockholders (including a group of funds that are part of the same Qualifying Fund Group), (x) each provision in this Section 2.5 that requires the Eligible Stockholder to provide any written statements, representations, undertakings, agreements or other instruments or to meet any other conditions shall be deemed to require each stockholder (including each individual fund) that is a member of such group to provide such statements, representations,

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undertakings, agreements or other instruments and to meet such other conditions (except that the members of such group may aggregate the shares that each member has owned continuously for the Minimum Holding Period in order to meet the three percent (3%) ownership requirement of the "Required Shares" definition) and (y) a breach of any obligation, agreement or representation under this Section 2.5 by any member of such group shall be deemed a breach by the Eligible Stockholder. No person may be a member of more than one group of stockholders constituting an Eligible Stockholder with respect to any annual meeting.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)Definition of Ownership.

For purposes of this Section 2.5, an Eligible Stockholder shall be deemed to "own" only those outstanding shares of stock of the Corporation as to which the stockholder possesses both (i) the full voting and investment rights pertaining to the shares and (ii) the full economic interest in (including the opportunity for profit from and risk of loss on) such shares; provided that the number of shares calculated in accordance with clauses (i) and (ii) shall not include any shares (x) sold by such stockholder or any of its affiliates in any transaction that has not been settled or closed, (y) borrowed by such stockholder or any of its affiliates for any purposes or purchased by such stockholder or any of its affiliates pursuant to an agreement to resell or (z) subject to any option, warrant, forward contract, swap, contract of sale, other derivative or similar instrument or agreement entered into by such stockholder or any of its affiliates, whether any such instrument or agreement is to be settled with shares or with cash based on the notional amount or value of shares of outstanding stock of the Corporation, in any such case which instrument or agreement has, or is intended to have, the purpose or effect of (1) reducing in any manner, to any extent or at any time in the future, such stockholder's or its affiliates' full right to vote or direct the voting of any such shares and/or (2) hedging, offsetting or altering to any degree any gain or loss realized or realizable from maintaining the full economic ownership of such shares by such stockholder or affiliate. A stockholder shall "own" shares held in the name of a nominee or other intermediary so long as the stockholder retains the right to instruct how the shares are voted with respect to the election of directors and possesses the full economic interest in the shares. A stockholder's ownership of shares shall be deemed to continue during any period in which (i) the stockholder has loaned such shares, provided that the stockholder has the power to recall such loaned shares on five (5) business days' notice and includes in the Notice of Proxy Access Nomination an agreement that it (A) will promptly recall such loaned shares upon being notified that any of its Stockholder Nominees will be included in the Corporation's proxy materials and (B) will continue to hold such recalled shares through the date of the annual meeting or (ii) the stockholder has delegated any voting power by means of a proxy, power of attorney or other instrument or arrangement which is revocable at any time by the stockholder. The terms "owned," "owning" and other variations of the word "own" shall have correlative meanings. For purposes of this Section 2.5, the term "affiliate" or "affiliates" shall have the meaning ascribed thereto under the General Rules and Regulations under the Exchange Act.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)Form of Notice.

To be in proper written form, the Notice of Proxy Access Nomination must include or be accompanied by the following:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)a written statement by the Eligible Stockholder certifying as to the number of shares it owns and has owned continuously for the Minimum Holding Period, and the Eligible Stockholder's agreement to provide (A) within five (5) business days following the later of the record date for the annual meeting or the date notice of the record date is first publicly disclosed, a written statement by the Eligible Stockholder certifying as to the number of shares it owns and has owned continuously through the record date and (B) immediate notice if the Eligible Stockholder ceases to own any of the Required Shares prior to the date of the annual meeting;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)one or more written statements from the record holder of the Required Shares (and from each intermediary through which the Required Shares are or have been held during the Minimum Holding Period) verifying that, as of a date within seven (7) calendar days prior to the date the Notice of Proxy Access Nomination is delivered to or mailed and received by the Secretary of the Corporation, the Eligible

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Stockholder owns, and has owned continuously for the Minimum Holding Period, the Required Shares, and the Eligible Stockholder's agreement to provide, within five (5) business days following the later of the record date for the annual meeting or the date notice of the record date is first publicly disclosed, one or more written statements from the record holder and such intermediaries verifying the Eligible Stockholder's continuous ownership of the Required Shares through the record date;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)a copy of the Schedule 14N that has been or is concurrently being filed with the SEC as required by Rule 14a-18 under the Exchange Act;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)the information, statements, representations, agreements and other documents with respect to a Proposing Person and a Proposed Nominee that would be required to be set forth in or included with a stockholder's notice of a nomination pursuant to Section 2.4, together with the written consent of each Stockholder Nominee to being named as a nominee and to serve as a director if elected;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v)a representation that the Eligible Stockholder (A) will continue to hold the Required Shares through the date of the annual meeting, (B) acquired the Required Shares in the ordinary course of business and not with the intent to change or influence control of the Corporation, and does not presently have such intent, (C) has not nominated and will not nominate for election to the Board at the annual meeting any person other than the Stockholder Nominee(s) it is nominating pursuant to this Section 2.5, (D) has not engaged and will not engage in, and has not and will not be a "participant" in another person's, "solicitation" within the meaning of Rule 14a-1(l) under the Exchange Act in support of the election of any individual as a director at the annual meeting other than its Stockholder Nominee(s) or a nominee of the Board, (E) has not distributed and will not distribute to any stockholder of the Corporation any form of proxy for the annual meeting other than the form distributed by the Corporation, (F) has complied and will comply with all laws and regulations applicable to solicitations and the use, if any, of soliciting material in connection with the annual meeting and (G) has provided and will provide facts, statements and other information in all communications with the Corporation and its stockholders that are or will be true and correct in all material respects and do not and will not omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi)a statement indicating whether the Eligible Stockholder intends to continue to own the Required Shares for at least one year following the annual meeting;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vii)an undertaking that the Eligible Stockholder agrees to (A) assume all liability stemming from any legal or regulatory violation arising out of the Eligible Stockholder's communications with the stockholders of the Corporation or out of the information that the Eligible Stockholder provided to the Corporation, in each case in connection with the Eligible Stockholder's efforts to elect its Stockholder Nominee(s), (B) indemnify and hold harmless the Corporation and each of its directors, officers and employees individually against any liability, loss or damages in connection with any threatened or pending action, suit or proceeding, whether legal, administrative or investigative, against the Corporation or any of its directors, officers or employees arising out of any nomination submitted by the Eligible Stockholder pursuant to this Section 2.5 or any solicitation or other activity in connection therewith and (C) file with the SEC any solicitation materials provided to any stockholders of the Corporation relating to the meeting at which its Stockholder Nominee(s) will be nominated, regardless of whether any such filing is required under Regulation 14A of the Exchange Act or whether any exemption from filing is available for such solicitation materials under Regulation 14A of the Exchange Act;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(viii)in the case of a nomination by a group of stockholders together constituting an Eligible Stockholder, the designation by all group members of one member of the group that is authorized to receive communications, notices and inquiries from the Corporation and to act on behalf of all members of the group with respect to all matters relating to the nomination under this Section 2.5 (including withdrawal of the nomination); and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ix)in the case of a nomination by a group of stockholders together constituting an Eligible Stockholder in which two or more funds that are part of the same Qualifying Fund Group are counted as

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one stockholder for purposes of qualifying as an Eligible Stockholder, documentation reasonably satisfactory to the Corporation that demonstrates that the funds are part of the same Qualifying Fund Group.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)Additional Required Information.

In addition to the information required pursuant to Section 2.5(f) or any other provision of these Bylaws, (i) the Corporation may require any proposed Stockholder Nominee to furnish any other information (A) that may reasonably be requested by the Corporation to determine whether the Stockholder Nominee would (x) qualify as independent (including with respect to all committees of the Board) under the listing standards and rules of each exchange upon which the Corporation's common stock is at the time listed, any applicable rules of the SEC and any publicly disclosed standards used by the Board in determining and disclosing independence of the Corporation's directors, (y) be a "non-employee director" for purposes of Rule 16b-3 under the Exchange Act (or any successor rule), and (z) be an "outside director for the purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended (or any successor provisions) (collectively the "Independence Standards"), (B) that could be material to a reasonable stockholder's understanding of the independence, or lack thereof, of such Stockholder Nominee or (C) that may reasonably be required by the Corporation to determine the eligibility of such Stockholder Nominee to serve as a director of the Corporation, and (ii) the Corporation may require the Eligible Stockholder to furnish any other information that may reasonably be required by the Corporation to verify the Eligible Stockholder's continuous ownership of the Required Shares for the Minimum Holding Period.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h)Supporting Statement.

The Eligible Stockholder may, at its option, provide to the Secretary of the Corporation, at the time the Notice of Proxy Access Nomination is provided, a written statement, not to exceed 500 words, in support of each Stockholder Nominee(s)' candidacy (a "Supporting Statement"). Only one Supporting Statement may be submitted by an Eligible Stockholder (including any group of stockholders together constituting an Eligible Stockholder) in support of each of its Stockholder Nominee(s). Notwithstanding anything to the contrary contained in this Section 2.5, the Corporation may omit from its proxy materials any information or Supporting Statement (or portion thereof) if the Corporation in good faith believes that (i) the inclusion of the Supporting Statement (or portion thereof) would violate any applicable law or regulation or (ii) the Supporting Statement (or portion thereof) (x) directly or indirectly impugns the character, integrity or personal reputation of, or directly or indirectly makes charges concerning improper, illegal or immoral conduct or associations, without factual foundation, with respect to, any person or (y) is untrue in any material respect (or omits to state a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)Correction of Defects.

In the event that any information or communications provided by an Eligible Stockholder or a Stockholder Nominee to the Corporation or its stockholders ceases to be true and correct in all material respects or omits to state a material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading, such Eligible Stockholder or Stockholder Nominee, as the case may be, shall promptly notify the Secretary of the Corporation of any defect in such previously provided information and of the information that is required to correct any such defect; it being understood that providing such notification shall not be deemed to cure any such defect or limit the remedies available to the Corporation relating to any such defect (including the right to omit a Stockholder Nominee from its proxy materials pursuant to this Section 2.5).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j)Stockholder Nominee Eligibility.

Notwithstanding anything to the contrary contained in this Section 2.5, the Corporation shall not be required to include in its proxy materials, pursuant to this Section 2.5, any Stockholder Nominee (i) who would not meet the Independence Standards, (ii) whose election as a member of the Board would

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cause the Corporation to be in violation of these Bylaws, the Charter, the rules and listing standards of the principal United States securities exchanges upon which the stock of the Corporation is listed or traded, or any applicable state or federal law, rule or regulation, (iii) who is or has been, within the past three years, an officer or director of a competitor, as defined in Section 8 of the Clayton Antitrust Act of 1914, (iv) who is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses) or has been convicted in such a criminal proceeding within the past ten years, (v) who is subject to any order of the type specified in Rule 506(d) of Regulation D promulgated under the Securities Act of 1933, as amended, or (vi) who shall have provided any information to the Corporation or its stockholders that was untrue in any material respect or that omitted to state a material fact necessary to make the statements made, in light of the circumstances in which they were made, not misleading.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k)Invalid Nominations.

Notwithstanding anything to the contrary set forth herein, if (i) a Stockholder Nominee and/or the applicable Eligible Stockholder breaches any of its agreements or representations or fails to comply with any of its obligations under this Section 2.5 or (ii) a Stockholder Nominee otherwise becomes ineligible for inclusion in the Corporation's proxy materials pursuant to this Section 2.5, dies, or becomes unable to serve as a director due to disability or otherwise becomes ineligible or unavailable for election at the annual meeting, (x) the Corporation may omit or, to the extent feasible, remove the information concerning such Stockholder Nominee and the related Supporting Statement from its proxy materials and/or otherwise communicate to its stockholders that such Stockholder Nominee will not be eligible for election at the annual meeting, (y) the Corporation shall not be required to include in its proxy materials any successor or replacement nominee proposed by the applicable Eligible Stockholder or any other Eligible Stockholder and (z) the Board or the chair of the annual meeting shall declare such nomination to be invalid and such nomination shall be disregarded notwithstanding that proxies in respect of such vote may have been received by the Corporation. In addition, if the Eligible Stockholder (or a qualified representative of the Eligible Stockholder) does not appear at the annual meeting to present any nomination pursuant to this Section 2.5, such nomination shall be declared invalid and disregarded as provided in clause (z) above.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(l)Restrictions on Re-Nominations.

Any Stockholder Nominee who is included in the Corporation's proxy materials for a particular annual meeting of stockholders but either (i) withdraws from or becomes ineligible or unavailable for election at the annual meeting, or (ii) does not receive at least twenty-five percent (25%) of the votes cast in favor of such Stockholder Nominee's election, will be ineligible to be a Stockholder Nominee pursuant to this Section 2.5 for the next two (2) annual meetings of stockholders. For the avoidance of doubt, the immediately preceding sentence shall not prevent any stockholder from nominating any person to the Board pursuant to and in accordance with Section 2.4.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(m)Board Determinations; Exclusivity.

The Board (or any other person or body authorized by the Board, including the chair of the applicable annual meeting) shall have the power and authority to interpret this Section 2.5 and to make any and all determinations necessary or advisable to apply this Section 2.5 to any persons, facts or circumstances, including without limitation, the power to determine (i) whether a person or group of persons qualifies as an Eligible Stockholder, (ii) whether outstanding shares of stock of the Corporation are "owned" for purposes of meeting the ownership requirements of this Section 2.5, (iii) whether any and all requirements of this Section 2.5 have been satisfied, including timely delivery in proper form of the Notice of Proxy Access Nomination, (iv) whether a person satisfies the requirements to be a Stockholder Nominee, including the Independence Standards, (v) whether the inclusion of a Supporting Statement (or any portion thereof) meets the grounds for omission set forth in Section 2.5(h) and (vi) whether any nomination of a Stockholder Nominee is invalid under Section 2.5(k) hereof. This Section 2.5 shall be the exclusive means for the stockholders to include nominees for election as a director of the Corporation in the Corporation's proxy statement and on its form of proxy for an annual meeting of stockholders. For the avoidance of doubt, the provisions of this Section 2.5 shall not apply to a special meeting of stockholders,

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and the Corporation shall not be required to include a director nominee of a stockholder or any other person in the Corporation's proxy statement or form a proxy for any special meeting of stockholders.

2.6Quorum.

At each meeting of the stockholders, except where otherwise provided by the Charter or these Bylaws, the holders of a majority of the issued and outstanding shares of Common Stock of the Corporation entitled to vote at such meeting, present in person or represented by proxy, shall constitute a quorum for the transaction of business. In the absence of a quorum, any officer entitled to preside at, or act as secretary of, such meeting, or a majority in voting power of the stockholders present in person or represented by proxy and entitled to vote, shall have the power to adjourn the meeting from time to time, until stockholders holding the requisite amount of stock to constitute a quorum shall be present or represented. At any such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally called.

2.7Adjournment.

Any meeting of stockholders, annual or special, may adjourn from time to time to reconvene at the same or some other place, if any, and notice need not be given of any such adjourned meeting if the time and place, if any, or means of remote communication, if any, thereof are (i) announced at the meeting at which the adjournment is taken, (ii) displayed, during the time scheduled for the meeting, on the same electronic network used to enable stockholders and proxy holders to participate in the meeting by means of remote communication or (iii) set forth in the notice of meeting, or as otherwise provided by Section 222 of the DGCL. At the adjourned meeting, this Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. In addition to such other powers as are conferred upon the person acting as chairperson of the meeting in these Bylaws or by the Board, such person shall have the authority to adjourn the meeting at any time.

2.8Organization.

Unless otherwise determined by the Board, at each meeting of the stockholders, one of the following shall act as chairperson of the meeting and preside thereat, in the following order of precedence:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)the Chairperson, if any; or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)any director, officer or stockholder of the Corporation designated by the Board to act as chairperson of such meeting and to preside thereat if the Chairperson shall be absent from such meeting.

The Secretary, or if he or she shall be absent from such meeting, the person (who shall be an Assistant Secretary, if an Assistant Secretary has been appointed and is present) whom the chairperson of such meeting shall appoint, shall act as secretary of such meeting and keep the minutes thereof.

2.9Order of Business.

The order of business at each meeting of the stockholders shall be determined by the chairperson of such meeting.

2.10Voting.

Except as otherwise provided by law, the Charter or these Bylaws, at each meeting of the stockholders, every stockholder of the Corporation shall be entitled to one vote in person or by proxy for each share of Common Stock of the Corporation held by such stockholder and registered in such stockholder's name on the books of the Corporation on the date fixed pursuant to Section 6.7 of Article VI as the record date for the determination of stockholders entitled to vote at such meeting. Persons holding

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stock in a fiduciary capacity shall be entitled to vote the shares so held. A person whose stock is pledged shall be entitled to vote, unless, in the transfer by the pledgor on the books of the Corporation, such person has expressly empowered the pledgee to vote thereon, in which case only the pledgee or the pledgee's proxy may represent such stock and vote thereon. Shares of Common Stock standing in the name of another corporation may be voted either in person or by proxy, by the president of such corporation or other entity or any other officer appointed by such president. A proxy executed by any principal officer of such other corporation or other entity or assistant thereto shall be conclusive evidence of the signer's authority to act, in the absence of express notice to the Corporation, given in writing to the Secretary of the Corporation, of the designation of some other person by the board of directors or the bylaws of such other corporation. If shares or other securities having voting power stand in the record of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety or otherwise, or if two or more persons have the same fiduciary relationship respecting the same shares, unless the Secretary shall be given written notice to the contrary and furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the following effect:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)if only one votes, such vote binds all;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)if more than one votes, the act of the majority so voting binds all; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)if more than one votes, but the vote is evenly split on any particular matter, such shares shall be voted in the manner provided by law.

If the instrument so filed shows that any such tenancy is held in unequal interests, a majority or even-split for the purposes of this Section 2.10 shall be a majority or even-split in interest. Any vote of stock may be given by the stockholder entitled thereto in person or by a proxy appointed by an instrument in writing, subscribed by such stockholder or by such stockholder's attorney thereunto authorized, delivered to the secretary of the meeting; provided, however, that no proxy shall be voted after three years from its date, unless said proxy provides for a longer period.

At all meetings of the stockholders, all matters (other than the election of directors) shall be decided by the affirmative vote of a majority of shares present in person or represented by proxy at such meeting and entitled to vote thereon. Directors shall be elected by a plurality of the shares present in person or represented by proxy at such meeting and entitled to vote on the election of directors. The vote on any question need not be by written ballot.

2.11Inspection.

The chairperson of the meeting may at any time appoint one or more inspectors to serve at any meeting of the stockholders. Any inspector may be removed, and a new inspector or inspectors appointed, by the Board at any time. Such inspectors shall decide upon the qualifications of voters, accept and count votes, declare the results of such vote, and subscribe and deliver to the secretary of the meeting a certificate stating the number of shares of stock issued and outstanding and entitled to vote thereon and the number of shares voted for and against the question, respectively. The inspectors need not be stockholders of the Corporation, and any director or officer of the Corporation may be an inspector on any question other than a vote for or against his or her election to any position with the Corporation or on any other matter in which he or she may be directly interested. Before acting as herein provided, each inspector shall subscribe an oath faithfully to execute the duties of an inspector with strict impartiality and according to the best of the inspector's ability.

2.12List of Stockholders.

It shall be the duty of the Secretary or other officer of the Corporation who shall have charge of its stock ledger to prepare and make, at least ten (10) days before every meeting of the stockholders, a complete list of the stockholders entitled to vote thereat, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such

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list shall be open to the examination of any stockholder, for any purpose germane to any such meeting, during ordinary business hours, for a period of at least ten (10) days prior to such meeting, in the manner required by applicable law.

ARTICLE III<u><br>BOARD OF DIRECTORS</u>

3.1General Powers.

Except as otherwise provided by the Delaware General Corporation Law (the "DGCL") or the Charter, the business, property and affairs of the Corporation shall be managed by or under the direction of the Board, which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by law or by the Charter directed or required to be exercised or done by the stockholders.

3.2Number and Term of Office.

The Board shall consist of such number of directors as may be set by the Board from time to time. The Board shall initially consist of seven (7) members.

3.3Vacancies.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)Unless otherwise required by law or the Charter, vacancies arising through death, resignation, removal, an increase in the number of directors or otherwise may be filled only by a majority of the directors then in office, though less than a quorum, or by the sole remaining director, and the directors so chosen shall hold office until the next annual election for the class to which the directors were appointed and until their successors are duly elected and qualified, or until their earlier death, resignation or removal.

3.4Election of Directors.

Subject to the Charter, directors shall be elected by a plurality of the shares present in person or represented by proxy at a meeting of its stockholders and entitled to vote on the election of directors; provided, however, that for purposes of such vote no stockholder shall be allowed to cumulate such stockholder's votes. Election of directors may be conducted in any manner approved at such meeting.

3.5Meetings.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)Annual Meetings. As soon as practicable after each annual election of directors, the Board shall meet for the purpose of organization and the transaction of other business, unless it shall have transacted all such business by written consent pursuant to Section 3.6 of this Article III.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)Other Meetings. Other meetings of the Board shall be held at such times and places as the Board, the Chairperson, the Chief Executive Officer or the President shall from time to time determine.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)Notice of Meetings. Notice shall be given to each director of each meeting, including the time, place and purpose of such meeting. Notice of each such meeting shall be mailed to each director by overnight courier, addressed to him or her at his or her residence or usual place of business, at least two (2) days before the date on which such meeting is to be held, or shall be sent to him or her at such place by facsimile transmission or email (to the facsimile number or email address, as the case may be, of such director set forth in the records of the Corporation), or be delivered personally or electronically not later than twenty-four (24) hours before the day on which such meeting is to be held, but notice need not be given to any director who shall attend such meeting, unless such director attends for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. A written waiver of notice, signed by the person entitled thereto, whether

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before or after the time of the meeting stated therein, shall be deemed equivalent to notice. Unless otherwise indicated in the notice thereof, any and all business may be transacted at a special meeting.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)Place of Meetings. The Board may hold its meetings at such place or places within or outside the State of Delaware as the Board may from time to time determine, or as shall be designated in the respective notices or waivers of notice thereof.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)Quorum and Manner of Acting. A majority of the total number of directors shall be present in person at any meeting of the Board in order to constitute a quorum for the transaction of business at such meeting, and the vote of a majority of those directors present at any such meeting at which a quorum is present shall be necessary for the passage of any resolution or act of the Board, except as otherwise expressly required by law, the Charter or these Bylaws. In the absence of a quorum for any such meeting, a majority of the directors present thereat may adjourn such meeting from time to time until a quorum shall be present.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)Organization. At each meeting of the Board, one of the following shall act as chairperson of the meeting and preside thereat, in the following order of precedence:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)the Chairperson, if any;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)the Chief Executive Officer (if a director);

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)the President (if a director);

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)any Vice President (if a director), in the order of seniority if there is more than one; or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v)any director designated by a majority of the directors present.

The Secretary or, in the case of his or her absence, an Assistant Secretary, if an Assistant Secretary has been appointed and is present, or any person whom the chairperson of the meeting shall appoint shall act as secretary of such meeting and keep the minutes thereof.

3.6Directors' Consent in Lieu of Meeting.

Any action required or permitted to be taken at any meeting of the Board or any committee of the Board may be taken without a meeting, without prior notice and without a vote, if all members of the Board or such committee, as the case may be, consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board or such committee; provided however, that such electronic transmission or transmissions must either set forth or be submitted with information from which it can be determined that the electronic transmission or transmissions were authorized by the director. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.

3.7Action by Means of Conference Telephone or Similar Communications Equipment.

Any one or more members of the Board or any committee of the Board may participate in a meeting of the Board or such committee by means of conference telephone or other communications equipment by which all persons participating in the meeting can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting.

3.8Committees.

The Board may designate one or more committees, each committee to consist of one or more directors, which to the extent provided in said resolution or resolutions shall have and may exercise the powers and authority of the Board in the management of the business and affairs of the Corporation (including the power and authority to designate other committees of the Board); provided, however, that

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no such committee shall have the power or authority in reference to the following matters: (i) approving or adopting, or recommending to the stockholders, any action or matter expressly required by the DGCL to be submitted to stockholders for approval (other than recommending the election or removal of directors), or (ii) adopting, amending, or repealing any Bylaw of the Corporation. The Board may designate one or more directors as alternate members of any committee to replace any absent or disqualified member of the committee. In the absence or disqualification of a member of a committee, the member or members present at any meeting of such committee and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in place of such absent or disqualified director. Except as otherwise provided by these Bylaws, each committee shall adopt its own rules governing the time, place, and method of holding its meetings and the conduct of its proceedings and shall meet as provided by such rules or by resolution of the Board. Unless otherwise provided by these Bylaws or any such rules or resolutions, notice of the time and place of each meeting of a committee shall be given to each member of such committee as provided in Section 3.5(c) of this Article III with respect to notices of meetings of the Board.

3.9Compensation.

Unless otherwise restricted by the Charter or these Bylaws, the Board shall have the authority to fix the compensation of the directors. The directors may be paid their expenses, if any, of attendance at each meeting of the Board and may be paid a fixed sum for attendance at each meeting of the Board or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of standing or special committees may be allowed like compensation for their service on such committees.

3.10Resignation and Removal.

Any director of the Corporation may resign at any time, by giving notice in writing to the Chairperson of the Board, the President or the Secretary of the Corporation. Such resignation shall take effect at the time therein specified or, if no time is specified, immediately; and, unless otherwise specified in such notice, the acceptance of such resignation shall not be necessary to make it effective. Except as otherwise required by applicable law and subject to the rights, if any, of the holders of shares of preferred stock then outstanding, any director or the entire Board may be removed from office at any time, but only for cause, and only by the affirmative vote of the holders of at least a majority in voting power of the issued and outstanding capital stock of the Corporation entitled to vote in the election of directors.

ARTICLE IV<u><br>OFFICERS</u>

4.1Number, Titles and Term of Office.

The officers of the Corporation shall be a Chief Executive Officer, President, Chief Financial Officer, one or more Vice Presidents (any one or more of whom may be designated Executive Vice President or Senior Vice President), a Secretary and, if the Board so elects, a Chairperson, a Treasurer and such other officers as the Board may from time to time elect or appoint. Each officer shall hold office until his or her successor shall be duly elected and shall qualify or until his or her death or until he or she shall resign or shall have been removed in the manner hereinafter provided. Any number of offices may be held by the same person, unless the Charter provides otherwise. Except for Chairperson, if any, no officer need be a director.

4.2Authority and Duties.

All officers, as between themselves and the Corporation, shall have such authority and perform such duties in the management of the Corporation as may be provided in these Bylaws or, to the extent so provided, by the Board.

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4.3Removal and Vacancies.

Any officer may be removed, either with or without cause, by the Board at any meeting thereof, or to the extent delegated to the Chairperson, by the Chairperson. Subject to the provisions of the Charter, any vacancy occurring in any office of the Corporation may be filled by the Board.

4.4Resignations.

Any officer of the Corporation may resign at any time by giving notice in writing or by electronic transmission to the Board or to the Chairperson of the Board; provided, however, that if such notice is given by electronic transmission, such electronic transmission must either set forth or be submitted with information from which it can be determined that the electronic transmission was authorized by the officer. Such resignation shall take effect on the date of the receipt of such notice or at any later time specified therein and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

4.5Salaries.

The salaries of all officers of the Corporation shall be fixed by the Board or a committee thereof from time to time, and no officer shall be prevented from receiving such salary by reason of the fact that he or she also is a director of the Corporation.

4.6The Chairperson.

If elected, the Chairperson shall preside at all meetings of the stockholders and of the Board; and he or she shall have such other powers and duties as designated in these Bylaws and as from time to time may be assigned to him or her by the Board. The Chairperson may be a non-executive Chairperson.

4.7Chief Executive Officer.

The Chief Executive Officer shall be responsible for supervising the management of the business and affairs of the Corporation, subject to the directions and limitations imposed by the Board, these Bylaws and the Charter. All other officers shall report and be accountable to the Chief Executive Officer, except as otherwise provided in these Bylaws or as otherwise determined by the Board. Unless the Board otherwise determines, the Chief Executive Officer shall, in the absence of the Chairperson (or if there be no Chairperson), preside at all meetings of the stockholders and (should he or she be a director) of the Board.

4.8The President.

Unless the Board otherwise determines, the President shall have the authority to agree upon and execute all leases, contracts, evidences of indebtedness and other obligations in the name of the Corporation; and, unless the Board otherwise determines, he or she shall, in the absence of the Chairperson (or if there be no Chairperson) and the Chief Executive Officer, preside at all meetings of the stockholders and (should he or she be a director) of the Board; and he or she shall have such other powers and duties as designated in accordance with these Bylaws and as from time to time may be assigned to him or her by the Board.

4.9Chief Financial Officer.

The Chief Financial Officer shall be responsible for supervising the Corporation's overall financial planning and financial controls and shall be responsible for the maintenance of the Corporation's books and records, subject to the directions and limitations imposed by the Board, the Chief Executive Officer and these Bylaws. All other officers involved with the financial and accounting functions of the Corporation shall report and be accountable to the Chief Financial Officer, and the Chief Financial Officer shall report to the Chief Executive Officer or the Board, as the Board shall determine.

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4.10Vice Presidents.

In the absence of the President, or in the event of his or her inability or refusal to act, a Vice President designated by the Board shall perform the duties of the President, and when so acting shall have all the powers of and be subject to all the restrictions upon the President. In the absence of a designation by the Board of a Vice President to perform the duties of the President, or in the event of the President's absence or inability or refusal to act, the Vice President who is present and who is senior in terms of time as a Vice President of the Corporation shall so act. The Vice Presidents shall perform such other duties and have such other powers as the Board may from time to time prescribe.

4.11The Secretary.

The Secretary shall keep the minutes of all meetings of the Board, committees of directors and the stockholders, in books provided for that purpose; he or she shall attend to the giving and serving of all notices; he or she may sign with the other appointed officers all certificates for shares of capital stock of the Corporation; he or she shall have charge of the certificate books, transfer books and stock ledgers, and such other books and papers as the Board may direct, all of which shall at all reasonable times be open to inspection of any director upon application at the office of the Corporation during business hours; he or she shall have such other powers and duties as designated in these Bylaws and as from time to time may be assigned to him or her by the Board; and he or she shall in general perform all acts incident to the office of Secretary, subject to the control of the Chief Executive Officer and the Board.

4.12Assistant Secretaries.

Each Assistant Secretary, if any, shall have the usual powers and duties pertaining to his or her office, together with such other powers and duties as designated in these Bylaws and as from time to time may be assigned to him or her by the Chief Executive Officer or the Board. The Assistant Secretaries shall exercise the powers of the Secretary during that officer's absence or inability or refusal to act.

4.13The Treasurer.

Unless such responsibility shall be designated to the Chief Financial Officer, the Treasurer, if any, shall have responsibility for the custody and control of all the funds and securities of the Corporation, and he or she shall have such other powers and duties as designated in these Bylaws and as from time to time may be assigned to him or her by the Board. He or she shall perform all acts incident to the position of Treasurer, subject to the control of the Chief Executive Officer and the Board; and he or she shall, if required by the Board, give such bond for the faithful discharge of his or her duties in such form as the Board may require.

4.14Assistant Treasurers.

Each Assistant Treasurer, if any, shall have the usual powers and duties pertaining to his or her office, together with such other powers and duties as designated in these Bylaws and as from time to time may be assigned to him or her by the Board. The Assistant Treasurers shall exercise the power of the Treasurer during that officer's absence or inability or refusal to act.

ARTICLE V<u><br>CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.</u>

5.1Execution of Documents.

The Board shall designate, by either specific or general resolution, the officers, employees and agents of the Corporation who shall have the power to execute and deliver deeds, contracts, mortgages, bonds, debentures, checks, drafts and other orders for the payment of money and other documents for and in the name of the Corporation, and may authorize such officers, employees and agents to delegate such power (including authority to redelegate) by written instrument to other officers, employees or agents

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of the Corporation. Unless so designated or expressly authorized by these Bylaws, no officer, employee or agent shall have any power or authority to bind the Corporation by any contract or engagement, to pledge its credit or to render it liable pecuniarily for any purpose or amount.

5.2Deposits.

All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation or otherwise as the Board or Treasurer, or any other officer of the Corporation to whom power in this respect shall have been given by the Board, shall select.

5.3Proxies with Respect to Stock or Other Securities of Other Corporations.

The Board shall designate the officers of the Corporation who shall have authority from time to time to exercise, or to appoint an agent or agents of the Corporation to exercise in the name and on behalf of the Corporation the powers and rights that the Corporation may have as the holder of stock or other securities in any other corporation, and to vote or consent with respect to such stock or securities. In the absence of any express designation by the Board, the Chief Executive Officer shall have such authority, unless otherwise determined by the Board. Such designated officers may instruct the person or persons so appointed as to the manner of exercising such powers and rights, and such designated officers may execute or cause to be executed in the name and on behalf of the Corporation or otherwise, such written proxies, powers of attorney or other instruments as they may deem necessary or proper in order that the Corporation may exercise its powers and rights.

ARTICLE VI<u><br>SHARES AND THEIR TRANSFER; FIXING RECORD DATE</u>

6.1Certificates for Shares.

The shares of capital stock of the Corporation shall be represented by certificates, unless the Charter otherwise provides or unless the Board provides by resolution or resolutions that some or all of the shares of any class or classes, or series thereof, of the Corporation's capital stock shall be uncertificated. Any such resolution shall not apply to shares previously represented by a certificate until such certificate is surrendered to the Corporation. Certificates, if any, for shares of stock of the Corporation shall be issued under the seal of the Corporation, or a facsimile thereof, and shall be numbered and shall be entered in the books of the Corporation as they are issued. Each certificate, if any, shall bear a serial number, shall exhibit the holder's name and the number of shares evidenced thereby, and shall be signed by the Chairperson of the Board or a Vice Chairperson, if any, or the Chief Executive Officer or the President or any Vice President, and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer. Any or all of the signatures on the certificate may be a facsimile. In case any officer or officers who shall have signed any such certificate or certificates shall cease to be such officer or officers of the Corporation, whether because of death, resignation or otherwise, before such certificate or certificates shall have been delivered by the Corporation, such certificate or certificates may nevertheless be adopted by the Corporation and be issued and delivered as though the person or persons who signed such certificate or certificates had not ceased to be such officer or officers of the Corporation.

6.2Record.

The names and addresses of the holders of record of the shares of each class and series of the Corporation's capital stock, together with the number of shares of each class and series held by each record holder and the date of issue of such shares, shall be entered on the books of the Corporation. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares of capital stock of the Corporation as the person entitled to exercise the rights of a stockholder, including, without limitation, the right to vote in person or by proxy at any meeting of the stockholders of the Corporation. The Corporation shall not be bound to recognize any equitable or other

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claim to or interest in any such shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise expressly required by the DGCL or other applicable law.

6.3Transfer and Registration of Stock.

The transfer of stock and certificates, if any, that represent the stock of the Corporation shall be governed by Article 8 of Subtitle 1 of Title 6 of the Delaware Code (the Uniform Commercial Code), as amended from time to time.

Registration of transfers of shares of the Corporation shall be made only on the books of the Corporation upon written request of the registered holder thereof, or of such holder's attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the Corporation, and upon the surrender of the certificate or certificates, if any, for such shares properly endorsed or accompanied by a stock power duly executed.

6.4Addresses of Stockholders.

Each stockholder shall designate to the Secretary an address at which notices of meetings and all other corporate notices may be served or mailed to such stockholder, and, if any stockholder shall fail to designate such address, corporate notices may be served upon any such stockholder by mail directed to such stockholder at the post-office address, if any, as appears on the share record books of the Corporation or at such stockholder's last known post-office address.

6.5Lost, Destroyed and Mutilated Certificates.

The holder of any shares of the Corporation shall immediately notify the Corporation of any loss, destruction or mutilation of the certificate therefor, and the Board may, in its discretion, cause to be issued to any such stockholder a new certificate or certificates for such shares, or shares in uncertificated form, upon the surrender of the mutilated certificates or, in the case of loss or destruction of the certificate, upon satisfactory proof of such loss or destruction, and the Board may, in its discretion, require the owner of the lost or destroyed certificate or such owner's legal representative to give the Corporation a bond in such sum and with such surety or sureties as it may direct to indemnify the Corporation against any claim that may be made against it on account of the alleged loss or destruction of any such certificate.

6.6Regulations.

The Board may make such rules and regulations as it may deem expedient, not inconsistent with these Bylaws, concerning the issue, transfer and registration of certificates, if any, for stock of the Corporation.

6.7Fixing Date for Determination of Stockholders of Record.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which record date shall be not more than sixty (60) nor less than ten (10) days before the date of such meeting. If no record date is fixed by the Board, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for the adjourned meeting.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful

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action, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto.

ARTICLE VII<u><br>GENERAL PROVISIONS</u>

7.1Declaration of Dividends.

Dividends upon the capital stock of the Corporation, subject to the provisions of the Charter, if any, may be declared by the Board at any regular or special meeting, or any action by written consent in lieu of such meeting, pursuant to law. Dividends may be paid in cash, property or shares of the capital stock of the Corporation, subject to the provisions of the Charter.

7.2Reserve Fund Before Payment of Dividend.

Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve fund to meet contingencies, for equalizing dividends, for repairing or maintaining any property of the Corporation, or for such other purpose as the directors shall think conducive to the interests of the Corporation. The directors may reduce or abolish any such reserve at any time.

7.3Fiscal Year.

The fiscal year of the Corporation shall be such fiscal year as the Board from time to time by resolution may determine.

ARTICLE VIII<u><br>INDEMNIFICATION AND INSURANCE</u>

8.1Indemnification.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)Each person who was or is made a party or is threatened to be made a party to or is otherwise involved (including as a witness) in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that such person is or was a director or officer of the Corporation, or, while serving as a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership (general or limited), limited liability company, joint venture, trust or other enterprise (collectively, "another enterprise" or an "other enterprise"), including service with respect to an employee benefit plan (hereinafter an "indemnitee"), whether the basis of such proceeding is alleged action in an official capacity while serving as a director, officer, employee or agent or in any other capacity while serving as a director or officer, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than permitted prior thereto), against all expense, liability and loss (including attorneys' fees, judgments, fines, excise taxes or amounts paid in settlement) actually and reasonably incurred or suffered by such indemnitee in connection therewith and such indemnification shall continue as to an indemnitee who has ceased to be a director or officer and shall inure to the benefit of the indemnitee's heirs, testators, intestates, executors and administrators; and such right shall include the right to be paid by the Corporation the expenses reasonably incurred in defending any such proceeding in advance of its final disposition (hereinafter an "advancement of expenses"); provided, however, that, if the DGCL requires, an advancement of expenses incurred by an indemnitee

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shall be made only upon delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a "final adjudication") that such indemnitee is not entitled to be indemnified for such expenses under this Section 8.1 or otherwise. The rights to indemnification and advancement of expenses conferred upon officers and directors of this Corporation in this Article VIII shall be a contract right, shall vest when such person becomes a director or officer of the Corporation or, while serving as a director or officer of the Corporation, a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, and shall continue as vested contract rights even if such person ceases to be a director or officer of the Corporation or, while serving as a director or officer of the Corporation, a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)If (X) a claim under Section 8.1(a) of this Article VIII with respect to any right to indemnification is not paid in full (following the final disposition of the proceeding) by the Corporation within thirty (30) days after a written claim has been received by the Corporation, or (Y) a claim under Section 8.1(a) of this Article VIII with respect to any right to advancement of expenses is not paid in full by the Corporation within twenty (20) days after a written claim has been received by the Corporation, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of any undertaking, the indemnitee shall be entitled to be paid the reasonable expense (including attorneys' fees) of prosecuting or defending such suit. In any suit brought by an indemnitee to enforce a right to indemnification or to an advancement of expenses (whether hereunder, or by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking or otherwise), the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Section or otherwise shall be on the Corporation. In any suit brought by an indemnitee to enforce a right to indemnification hereunder (but not a suit brought by an indemnitee seeking to enforce a right to an advancement of expenses), it shall be a defense by the Corporation that the indemnitee has not met any applicable standard required for indemnification under applicable law. With respect to any suit brought by an indemnitee to enforce a right to indemnification or a right to advancement of expenses or any suit brought by the Corporation to recover an advancement of expenses (whether pursuant to the terms of an undertaking or otherwise), neither (i) the failure of the Corporation to have made a determination prior to commencement of such suit that indemnification of such indemnitee is proper in the circumstances because such indemnitee has met the applicable standards of conduct under applicable law, nor (ii) an actual determination by the Corporation that such indemnitee has not met such applicable standards of conduct, shall create a presumption that such indemnitee has not met the applicable standards of conduct or, in a case brought by such indemnitee seeking to enforce a right to indemnification, be a defense to such suit.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)Anything in this Article VIII to the contrary notwithstanding, except for proceedings initiated by an indemnitee to enforce a right to indemnification or advancement of expenses, whether as provided in Section 8.1(b) of this Article VIII or otherwise, with respect to a proceeding initiated against the Corporation by a person who is or was a director or officer of the Corporation (whether initiated by such person in or by reason of such capacity or in or by reason of any other capacity, including as a director, officer, employee, or agent of another enterprise), the Corporation shall not be required to indemnify or to advance expenses (including attorneys' fees) to such person in connection with prosecuting such proceeding unless such proceeding was authorized by the Board. For the avoidance of doubt, no compulsory counterclaim against the Corporation in a proceeding initiated by or on behalf of the Corporation against or involving the indemnitee and, to the extent reasonably related to the defense of any such proceeding, no other counterclaim, cross-claim, affirmative defense, or like claim of an indemnitee asserted against the Corporation in an proceeding initiated by or on behalf of the Corporation against the indemnitee, shall be considered a proceeding or claim initiated or prosecuted by the indemnitee for purposes of this subsection (c).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)Anything in this Article VIII to the contrary notwithstanding, to the extent that a present or former director or officer of the Corporation has been successful on the merits or otherwise in defense of

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any threatened, pending, or completed proceeding referred to in Section 145(a) or (b) of the DGCL (whether such director or officer was a party to such proceeding by reason of the fact that he or she is or was a director or officer of the Corporation, or, while serving as a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee or agent of another enterprise), or in defense of any claim, issue, or matter therein, he or she shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him or her in connection therewith.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)For purposes of this Article VIII: (i) references to serving at the request of the Corporation as a director or officer of another enterprise shall include any service as a director or officer of the Corporation that imposes duties on, or involves services by, such director or officer with respect to an employee benefit plan; (ii) references to serving at the request of the Corporation as a employee or agent of another enterprise shall include any service as an employee or agent of the Corporation that imposes duties on, or involves services by, such employee or agent with respect to an employee benefit plan; and (iii) references to a director of another enterprise shall include, in the case of any entity that is not managed by a board of directors, such other position, such as manager or trustee or member of the governing body of such entity, that entails responsibility for the management and direction of such entity's affairs, including, without limitation, general partner of any partnership (general or limited) and manager or managing member of any limited liability company.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)The rights to indemnification and to the advancement of expenses conferred in this Article VIII shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, the Charter, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person's official capacity and as to action in another capacity while holding such office.

8.2Insurance.

The Corporation may purchase and maintain insurance, at its expense, to protect itself and any person who is or was a director, officer, employee or agent of the Corporation or any person who is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the DGCL.

8.3Amendment or Repeal.

Any amendment or repeal of the provisions of this Article VIII, or the adoption of any provision inconsistent with the provisions of this Article VIII, shall not adversely affect any right or protection hereunder of any indemnitee in respect of any act or omission occurring prior to the time of such amendment or repeal (regardless of whether the proceeding relating to such act or omission, or any proceeding relating to such person's rights to indemnification or to advancement of expenses, is commenced before or after the time of such amendment, repeal, modification, or adoption), and any such amendment, repeal, modification, or adoption that would adversely affect such person's rights to indemnification or advancement of expenses hereunder shall be ineffective as to such person, except with respect to any proceeding that relates to or arises from (and only to the extent such proceeding relates to or arises from) any act or omission of such person occurring after the effective time of such amendment, repeal, modification, or adoption.

8.4Severability

If any provision or provisions of this Article VIII shall be held to be invalid, illegal, or unenforceable for any reason whatsoever: (1) the validity, legality, and enforceability of the remaining provisions of this Article VIII (including, without limitation, each portion of any paragraph or clause containing any such provision held to be invalid, illegal, or unenforceable, that is not itself held to be invalid, illegal, or unenforceable) shall not in any way be affected or impaired thereby; and (2) to the fullest extent possible, the provisions of this Article VIII (including, without limitation, each such portion of any paragraph or

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clause containing any such provision held to be invalid, illegal, or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal, or unenforceable.

ARTICLE IX<u><br>AMENDMENT</u>

Any bylaw (including these Bylaws) may be adopted, amended or repealed by the requisite affirmative vote of shares present in person or represented in proxy at a meeting of the stockholders and entitled to vote or by the vote of the Board or by the directors' written consent pursuant to Section 3.6 of Article III.

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## Ex-4

**Exhibit 4.1**

**DESCRIPTION OF THE REGISTRANT'S SECURITIES**

**REGISTERED PURSUANT TO SECTION 12 OF THE**

**SECURITIES EXCHANGE ACT OF 1934**

As of December 29, 2019, Sprouts Farmers Market, Inc. has one class of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"): our common stock.

**Description of Common Stock**

**Authorized Capital Shares**

Our authorized capital stock consists of 200,000,000 shares of common stock, $0.001 par value per share, and 10,000,000 shares of undesignated preferred stock, $0.001 par value per share. The outstanding shares of our common stock are fully paid and nonassessable.

**Voting Rights**

Each holder of our common stock is entitled to one vote for each share of common stock held on all matters submitted to a vote of stockholders. Cumulative voting for the election of directors is not provided for in our Certificate of Incorporation, which means that the holders of a majority of our shares of common stock voted can elect all of the directors then standing for election.

**Dividend Rights**

Subject to preferences that may apply to shares of preferred stock outstanding at the time, the holders of outstanding shares of our common stock are entitled to receive dividends out of funds legally available at the times and in the amounts that our board of directors may determine.

**Liquidation Rights**

Upon our liquidation, dissolution, or winding-up, the assets legally available for distribution to our stockholders would be distributable ratably among the holders of our common stock and any participating preferred stock outstanding at that time after payment of liquidation preferences, if any, on any outstanding shares of preferred stock and payment of other claims of creditors.

**Preemptive or Similar Rights**

Our common stock is not entitled to preemptive rights and is not subject to conversion or redemption. The rights of the holders of our common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of our preferred stock that our board of directors may designate and issue in the future.

**Listing**

Our common stock is traded on the Nasdaq Stock Market under the trading symbol "SFM."

**Description of Preferred Stock**

Our board of directors is authorized, subject to limitations prescribed by Delaware law, to issue up to 10,000,000 shares of our preferred stock in one or more series, to establish from time to time the number of shares to be included in each series, to fix the designation, powers, preferences, and rights of the shares of each series and any of its qualifications, limitations, or restrictions, in each case without further action by our stockholders. Our board of directors can also increase or decrease the number of shares of any series of preferred stock, but not below the number of shares of that series then outstanding.

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**Anti-Takeover Effects of Our Certificate of Incorporation and Bylaws**

We are governed by the Delaware General Corporation Law (the "DGCL"). Our Certificate of Incorporation (the "Certificate of Incorporation") and our Second Amended and Restated Bylaws (the "Bylaws") contain certain provisions that could have the effect of delaying, deterring, or preventing another party from acquiring control of our company. These provisions, which are summarized below, may discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed, in part, to encourage persons seeking to acquire control of our company to negotiate first with our board of directors. We believe that the benefits of increased protection of our potential ability to negotiate more favorable terms with an unfriendly or unsolicited acquirer outweigh the disadvantages of potentially discouraging a proposal to acquire our company.

**Undesignated Preferred Stock**

As discussed above, our board of directors has the ability to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to acquire control of our company. These and other provisions may have the effect of deterring hostile takeovers or delaying changes in control or management of our company.

**Limits on Ability of Stockholders to Act by Written Consent or Call a Special Meeting**

Our Certificate of Incorporation provides that our stockholders may not act by written consent, which may lengthen the amount of time required to take stockholder actions. As a result, a holder controlling a majority of our capital stock would not be able to amend our Bylaws or remove directors without holding a meeting of our stockholders called in accordance with our Bylaws.

In addition, our Certificate of Incorporation provides that special meetings of the stockholders may be called only by the chairperson of our board or our board of directors. Stockholders may not call a special meeting, which may delay the ability of our stockholders to force consideration of a proposal or for holders controlling a majority of our capital stock to take any action, including the removal of directors.

**Requirements for Advance Notification of Stockholder Nominations and Proposals**

Our Bylaws establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of our board of directors or a committee of our board of directors. These provisions may have the effect of precluding the conduct of certain business at a meeting if the proper procedures are not followed. These provisions may also discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer's own slate of directors or otherwise attempting to obtain control of our company.

**Board Classification**

Our board of directors is divided into three classes, one class of which is elected each year by our stockholders. The directors in each class will serve for a three-year term. For more information on the classified board, see "Management—Board Composition." In addition, our Certificate of Incorporation and our Bylaws provide that directors may be removed only for cause. The classification of our board of directors and the limitations on the ability of our stockholders to remove directors could make it more difficult for a third party to acquire, or discourage a third party from seeking to acquire, control of our company.

**No Cumulative Voting**

Our Certificate of Incorporation and Bylaws do not permit cumulative voting in the election of directors. Cumulative voting allows a stockholder to vote a portion or all of the stockholder's shares for one or more candidates for seats on the board of directors. Without cumulative voting, a minority stockholder may not be able to gain as many seats on our board of directors as the stockholder would be able to gain if cumulative voting were permitted. The absence of cumulative voting makes it more difficult for a minority stockholder to gain a seat on our board of directors to influence our board's decision regarding a takeover or otherwise.

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**Amendment of Charter Provisions**

The amendment of the above provisions of our Certificate of Incorporation and Bylaws requires approval by holders of at least two-thirds of our outstanding capital stock entitled to vote generally in the election of directors.

**Delaware Anti-Takeover Statute**

Our Certificate of Incorporation provides that we are not governed by Section 203 of the DGCL which, in the absence of such provisions, would have imposed additional requirements regarding mergers and other business combinations.

The provisions of our Certificate of Incorporation and Bylaws could have the effect of discouraging others from attempting hostile takeovers and, as a consequence, might also inhibit temporary fluctuations in the market price of our common stock that often result from actual or rumored hostile takeover attempts. These provisions might also have the effect of preventing changes in our management. It is possible that these provisions could make it more difficult to accomplish transactions that stockholders might otherwise deem to be in their best interests.

The foregoing description of our securities is a summary and does not purport to be complete. It is subject to and qualified in its entirety by reference to our Certificate of Incorporation and our Bylaws, each of which are incorporated by reference as an exhibit to the Annual Report on Form 10-K of which this Exhibit 4.1 is a part. We encourage you to read our Certificate of Incorporation, our Bylaws and the applicable provisions of the DGCL for additional information.

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## Ex-10

**<u>Exhibit 10.12</u>**

**Sprouts Farmers Market, Inc.<br>Annual Bonus Plan**

The purpose of the Sprouts Farmers Market, Inc. Annual Bonus Plan (the "**Plan**") is to enhance the ability of Sprouts Farmers Market, Inc. (the "**Company**") to attract, reward and retain employees and to align employee interests with those of its stockholders by providing variable compensation, based on the achievement of performance objectives. The Plan provides a means of rewarding participants based on the performance of the Company and its subsidiaries and business units and, where appropriate, on a participant's personal performance. The Plan is effective as of February 28, 2023.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.**Definitions.**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)"**Award**" means an incentive award earned by a Participant under the Plan for any Performance Period.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)"**Board**" means the Company's Board of Directors.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)"**Change in Control**" has the meaning set forth in the Company's 2022 Omnibus Incentive Compensation Plan or any successor thereof.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)"**CEO**" means the Chief Executive Officer of the Company.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)"**Committee**" means (i) the Compensation Committee of the Board or another committee appointed by the Board to administer the Plan with respect to Executives, and (ii) the CEO or other Executive, as designated by the CEO, for Employees that are not Executives.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)"**Employee**" means any employee of the Company or any of its subsidiaries.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)"**Executive**" means any Employee that is an executive officer of the Company.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h)"**Participant**" for any Performance Period, means an Employee designated by the Committee to participate in the Plan and is not otherwise entitled to an annual bonus under an applicable employment agreement or bonus plan, policy or arrangement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)"**Performance Goals**" has the meaning set forth in Section 4(c).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j)**"Performance Period"** means the fiscal year of the Company or any other period designated by the Committee with respect to which an Award may be earned.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k)"**Target Award**" means the targeted amount, expressed either as a cash amount or as a percentage of the Participant's base salary that the Participant will be eligible to earn as an Award for the Performance Period if the targeted level of performance is achieved for each of the Performance Goals set by the Committee for the Participant.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.**Eligibility.** All Employees are eligible to participate in the Plan. The Committee shall designate which Employees shall participate in the Plan for each Performance Period. In order to be eligible to receive an Award with respect to any Performance Period, an Employee must be actively employed by the Company or a subsidiary on the payment date, except as provided in Section 6 below.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.**Administration.** The Committee shall administer the Plan. The Committee shall have full discretionary authority to establish the rules and regulations relating to the Plan, to interpret the Plan and those rules and regulations, to select Participants in the Plan, to determine each Participant's Target Award and Award amount, to approve all Awards, to decide the facts in any case arising under the Plan and to make all other determinations, including factual determinations, and to take all other actions necessary or appropriate for the proper administration of the Plan, including the delegation of such authority or power, where appropriate. All powers of the Committee shall be executed in its sole discretion, in the best interest of the Company, not as a fiduciary, and in keeping with the objectives of the Plan and need not be uniform as to similarly situated individuals. All decisions and determinations by the Committee shall be final, conclusive and binding on the Company, the Participants, and any other persons having or claiming an interest hereunder. The Committee's administration of the Plan, including all such rules and regulations, interpretations, selections, determinations, approvals, decisions, delegations, amendments, terminations and other actions, shall be final and binding on the Company and all Employees, including, the Participants and their respective beneficiaries and any other person having or claiming an interest on behalf of the Participant.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.**Determination of Awards.**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)<u>Establishment of Target Awards and Performance Goals</u>. As soon as practicable after the beginning of the Performance Period, the Committee shall determine the Employees who shall be Participants during that Performance Period, each Participant's Target Award and the Performance Goals for each Participant. The Target Awards may provide for differing amounts to be paid based on differing thresholds of performance. The amount actually paid to a Participant may be more or less than the Target Award, depending on the extent to which the Performance Goals are satisfied.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)<u>Performance Goal Criteria</u>. For any Performance Period, "Performance Goal" shall mean the performance goals of the Company or an individual or one or more divisions, business units, or subsidiaries, either individually, alternatively or in any combination, and measured on an absolute basis or relative to one or more peer companies or indices or any combination thereof and, if applicable, may be computed on an accrual or cash accounting basis. Performance Goals may relate to a business unit, specified subsidiaries, or the performance of the Company as a whole, or any combination of the foregoing, in each case as specified by the Committee. The criteria for the Performance Goals may include, but shall not be limited to, one or more of the following criteria: (i) share price, (ii) net income or earnings before or after taxes (including earnings before interest, taxes, depreciation and/or amortization), (iii) operating income, (iv) earnings per share, (v) comparable store sales growth, (vi) cash flow, (vii) return on capital, (viii) revenues, (ix) return measures, (x) sales or product volume, (xi) inventory turns, (xii) working capital, (xiii) gross or net profitability/profit margins, (xiv) objective measures of productivity or operating efficiency, (xv) costs, (xvi) budgeted expenses (operating and capital), (xvii) market share (in the aggregate or by segment), (xviii) level or amount of acquisitions, (xvix) economic value-added, (xx) enterprise value, (xxi) book value, (xxii) customer satisfaction survey results, (xxiii) objective measures related to store openings, relocations and remodelings (including number, cost, timeline, productivity and operating efficiency), (xxiv) objective measures related to lease arrangements (including number, cost and timeline), (xxv) strategic goals and objectives, including objectives related to qualitative or quantitative environmental, social and governance metrics, and (xxvi) any other performance goal deemed appropriate by the Committee.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)<u>Calculation of Performance Goals</u>. The Committee will define the manner of calculating the Performance Goal or Performance Goals it selects to use for such Performance Period for such Participant.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)<u>Earning an Award</u>. A Participant has no contractual right to an Award. A Participant will be eligible to earn an Award for a Performance Period based on the level of achievement of the Performance Goals established by the Committee for that Performance Period; provided that the Committee may

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increase or decrease the amount payable pursuant to an Award based on additional established performance criteria and/or based on the Committee's assessment of personal performance or other factors determined by the Committee in its sole discretion. The Committee shall have sole discretion to determine whether and to what extent the Performance Goals have been met. No Award shall be deemed earned until the Committee makes such determinations and all qualifying conditions of the Plan have been satisfied. The Committee shall have sole discretion to determine whether a Participant has earned an Award, and the amount of any such Award earned.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)<u>Adjustment of Awards</u>. Without limiting the Committee's authority hereunder, the Committee may make adjustments in the terms and conditions of, the criteria included in, and the performance results applicable to, Awards in recognition of extraordinary, unusual or nonrecurring events affecting the Company or the financial statements of the Company, changes in applicable laws, regulations, or accounting principles, or such other items or events, whenever the Committee determines, in its sole discretion, that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan. In furtherance of the foregoing, in the event of a Change in Control during a Performance Period, the Committee may make any of the adjustments described in the preceding sentence and/or may provide that each Participant shall receive the Participant's Target Award or a pro-rata portion thereof for the Performance Period in which the Change in Control occurs.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.**Payment of Awards.** 

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)<u>Payment Timing</u>. The Committee shall determine achievement of the Performance Goals and the Award, if any, that will be paid by the Company to each Participant, as soon as practicable following the final determination of the Company's financial results for the relevant Performance Period. Payment of the Awards determined by the Committee shall be made in or around March of the calendar year immediately following the last day of the relevant Performance Period.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)<u>Deferral</u>. Notwithstanding the foregoing, the Committee may permit a Participant to defer receipt of an Award that would otherwise be payable to the Participant. The Committee shall establish rules and procedures for any such deferrals, consistent with the applicable requirements of Section 409A.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.**Limitations on Rights to Payment of Awards.**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)<u>Employment</u>. No Participant shall have any right to receive payment of an Award under the Plan for a Performance Period unless the Participant remains in the employ of the Company through the payment date for the Award as a prerequisite for earning the Award, as determined by the Committee; provided, however, that the Committee may determine that if a Participant's employment with the Company terminates prior to the payment date, the Participant shall remain eligible to receive all or a pro-rated portion of any Award that would otherwise have been paid for the applicable Performance Period, based on attainment of the Performance Goals, in such circumstances as the Committee deems appropriate. Payment of any such Award shall be made at the same time Awards are paid to other Participants in the Plan in accordance with Section 5 above.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)<u>Leaves of Absence</u>. If a Participant is on an authorized leave of absence during the Performance Period, the Committee may determine that the Participant is eligible to receive a pro-rated portion of any Award that would otherwise have been earned, as determined by the Committee. Payment of any such Award shall be made at the same time Awards are paid to other Participants in the Plan in accordance with Section 5 above.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.**Amendment and Termination of the Plan.** The Compensation Committee may amend or terminate this Plan at any time, whether prospectively or retroactively and without regard to whether such amendment or termination impairs or enhances a Participant's rights as in effect prior to such amendment or termination.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.**Miscellaneous Provisions.**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)<u>Clawback</u>. Any amount paid under the Plan shall be subject to any applicable clawback and other policies implemented by the Board applicable to the Employee, as in effect and as amended from time to time.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)<u>No Employment Right</u>. Nothing in the Plan, and no action taken pursuant to the Plan, shall confer upon a Participant the right to continue in the employ of the Company or its affiliates or affect the right of the Company or its affiliates to terminate a Participant's employment at any time for any reason.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)<u>No Assignment</u>. A Participant's right and interest under the Plan may not be assigned or transferred, and any attempted assignment or transfer shall be null and void.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)<u>Unfunded Arrangement</u>. The Plan is an unfunded incentive compensation arrangement. Nothing contained in the Plan, and no action taken pursuant to the Plan, shall create or be construed to create a trust of any kind. Each Participant's right to receive payment under the Plan shall be no greater than the right of an unsecured general creditor of the Company.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)<u>Tax Matters</u>. All Awards under the Plan shall be subject to applicable federal (including FICA), state and local tax withholding requirements. The Plan is intended to comply with Section 409A of the Internal Revenue Code or an exemption. If and to the extent that any payment under this Plan is deemed to be deferred compensation subject to the requirements of Section 409A, this Plan shall be administered so that such payments are made in accordance with the requirements of Section 409A, including the six month delay for "specified employees" as determined in accordance with Section 409A. However, in no event shall the Company be liable for any taxes, penalties, interest or other expenses that may be incurred by a Participant on account of non-compliance with Section 409A.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)<u>Governing Law</u>. The validity, construction, interpretation and effect of the Plan shall be governed and construed by and determined in accordance with the laws of the State of Delaware, without giving effect to the conflict of laws provisions thereof, to the extent that United States federal laws do not otherwise control. Any action arising out of, or relating to, any of the provisions of the Plan shall be brought only in federal or state courts in the state of Delaware, and the jurisdiction of such court in any such proceeding shall be exclusive.

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## Ex-10

**<u>Exhibit 10.11.1(b)</u>**

**SPROUTS FARMERS MARKET, INC.**

**RSU Agreement**

**Cover Sheet**

Sprouts Farmers Market, Inc., a company organized under the laws of the State of Delaware ("Company"), hereby grants an award of restricted stock units ("RSUs") to the individual named below. The terms and conditions of the RSUs are set forth in this cover sheet ("Cover Sheet"), in the attached RSU Agreement (the "Agreement") and in the Sprouts Farmers Market, Inc. 2022 Omnibus Incentive Compensation Plan (as may be amended from time to time, the "Plan"). All capitalized terms used but not defined in this Cover Sheet and the Agreement will have the meanings ascribed to such terms in the Plan.

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| |
|:---|
| &nbsp;&nbsp;**Granted to:** |
| &nbsp;&nbsp;**Grant Date:** |
| &nbsp;&nbsp;**Number of RSUs:** |
| &nbsp;&nbsp;**Vesting Schedule:** |
| &nbsp;&nbsp;**Delivery of Shares:** |

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By signing this Cover Sheet, you agree to all of the terms and conditions described in this Cover Sheet, in the Agreement and in the Plan. The Company has the right to rescind this award, if you do not sign and return this Cover Sheet within 60 days of the Grant Date.

Signature: _____________________ Date: _______________

**SPROUTS FARMERS MARKET, INC.**

By:

Name:

Title:

------

 **SPROUTS FARMERS MARKET, INC.** 

**2022 OMNIBUS INCENTIVE COMPENSATION PLAN** 

**RSU AGREEMENT**

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| | |
|:---|:---|
| &nbsp;&nbsp;**Right to Shares** | &nbsp;&nbsp;The award of RSUs represents your right to receive, and the Company's obligation to deliver, one Share per RSU, subject to the terms and conditions of this Agreement, the Plan and the Cover Sheet.  |
| &nbsp;&nbsp;**Vesting** | &nbsp;&nbsp;The RSUs awarded to you will vest in accordance with the schedule set forth in the Cover Sheet.<br>All RSUs will cease vesting as of the date your service with the Company has terminated for any reason, except as set forth herein. |
| &nbsp;&nbsp;**Delivery; Settlement**<br>| &nbsp;&nbsp;As soon as practicable following vesting, a number of Shares equal to the number of RSUs which vest shall be delivered in a lump sum in settlement of such RSUs, and upon such delivery, you shall have no further rights with respect to those RSUs. |
| &nbsp;&nbsp;**Change in Control** | &nbsp;&nbsp;Notwithstanding the foregoing or the Cover Sheet, immediately prior to a Change in Control, all RSUs then outstanding shall vest and be settled for a number of Shares equal to the number of such vested RSUs. |
| &nbsp;&nbsp;**Termination due to Death or Disability** | &nbsp;&nbsp;Should your service with the Company terminate due to death or Disability, then all RSUs that have not yet vested shall vest upon such termination.  |
| &nbsp;&nbsp;**Termination** | &nbsp;&nbsp;Should your service with the Company terminate for any reason, except due to death or Disability as described above, all of your RSUs then outstanding will terminate, and you will no longer have any right to receive any Shares (or Dividend Equivalents, as defined below) in respect of such RSUs. <br>The grant of RSUs does not confer upon you any right to continued service as a member of the Company's Board of Directors or interfere with the Company's right to remove you from the Board in the manner set forth in the Company's bylaws. |
| &nbsp;&nbsp;**Restrictions on Resale and Settlement** | &nbsp;&nbsp;By signing this Agreement, you agree not to sell any Shares received upon settlement of RSUs at a time when applicable laws, regulations or Company policies prohibit a sale. <br>The Company's obligation to deliver Shares upon settlement of the RSUs shall be subject to applicable laws, rules and regulations and also to such approvals by governmental agencies as may be deemed appropriate to comply with relevant securities laws and regulations.  |
| &nbsp;&nbsp;**Transfer of RSUs** | &nbsp;&nbsp;You cannot transfer or assign RSUs or your right to receive Shares upon settlement of RSUs. For instance, you may not sell RSUs or use them as security for a loan. If you attempt to do any of these things, your RSUs will immediately become invalid. <br>Regardless of any marital property settlement agreement, the Company or a securities broker, as applicable, is not obligated to recognize your former spouse's interest in your RSUs in any way. |
| &nbsp;&nbsp;**Stockholder Rights; Dividend Equivalent Rights** | &nbsp;&nbsp;You, or your estate or heirs, have no rights as a stockholder of the Company in respect of RSUs until Shares have been delivered in settlement of the RSUs. No adjustments are made for dividends or other  |

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------

---

| | |
|:---|:---|
|  | &nbsp;&nbsp;rights if the applicable record date occurs before Shares are delivered, except as described in the Plan.<br>However, to the extent you hold RSUs on the record date of any cash dividend on Shares, you will contingently be entitled to a payment in an amount, per RSU held, equal to the amount of the cash dividend declared and paid in respect of one Share (a "Dividend Equivalent"). This Dividend Equivalent right will be subject to the same vesting schedule applicable to the related RSUs and shall be paid to you if and to the extent that the related RSUs vest as soon as practicable following such vesting. Any Dividend Equivalents, to the extent they become payable, will be subject to applicable withholding taxes. |
| &nbsp;&nbsp;**Applicable Law** | &nbsp;&nbsp;This Agreement will be interpreted and enforced under the laws of the State of Delaware. |
| &nbsp;&nbsp;**409A**<br>| &nbsp;&nbsp;This Agreement and the RSUs are intended to comply with, or be exempt from, the requirements of Section 409A of the Code, and shall in all respects be administered in accordance with Section 409A of the Code. However, neither the Company nor any Affiliate of the Company shall have any responsibility or liability if the RSUs are not compliant with, or exempt from, Section 409A of the Code. If the RSUs are subject to Section 409A of the Code, payments to be made upon a termination of service shall only be made upon a "separation from service" under Section 409A of the Code. If you are a Key Employee and any distribution with respect to the RSUs is to be distributed on a separation from service, such distribution shall be postponed for six months as set forth in Section 19(f)(iii) of the Plan, if applicable. |
| &nbsp;&nbsp;**The Plan and Other Agreements** | &nbsp;&nbsp;The text of the Plan and any amendments thereto are incorporated in this Agreement by reference.<br>This Agreement, the Cover Sheet and the Plan constitute the entire understanding between you and the Company regarding the RSUs. Any prior agreements, commitments or negotiations concerning the RSUs are superseded. |

---

**By signing the Cover Sheet of this Agreement, you agree to all of the terms and conditions described above and in the Plan and evidence your acceptance of the powers of the Committee of the Board of Directors of the Company that administers the Plan.**

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## Ex-21

**<u>Exhibit 21.1</u>**

**Subsidiaries of Sprouts Farmers Market, Inc.**

---

| | | | |
|:---|:---|:---|:---|
|  | **Jurisdiction of** | **Control by** | **Control by** |
| **<u>Subsidiary</u>** | **Organization** | **Registrant** | **Subsidiary** |
| Sprouts Farmers Markets Holdings, LLC | &nbsp;&nbsp;Delaware | &nbsp;&nbsp;100% |  |
| Sunflower Farmers Markets, LLC | &nbsp;&nbsp;Delaware |  | &nbsp;&nbsp;100% |
| SFM, LLC | &nbsp;&nbsp;Delaware |  | &nbsp;&nbsp;100% |
| SFM Logistics, LLC | &nbsp;&nbsp;Arizona |  | &nbsp;&nbsp;100% |
| SFM Manager, LLC | &nbsp;&nbsp;Texas |  | &nbsp;&nbsp;100% |
| SF Market Texas, LLC | &nbsp;&nbsp;Delaware |  | &nbsp;&nbsp;100% |
| Henry's Holdings LLC | &nbsp;&nbsp;Delaware |  | &nbsp;&nbsp;100% |
| Sprouts Farmers Market Texas, LP | &nbsp;&nbsp;Texas |  | &nbsp;&nbsp;100% |
| SH Markets, Inc. | &nbsp;&nbsp;Texas |  | &nbsp;&nbsp;100% |
| SFM Beverages, Inc. | &nbsp;&nbsp;Texas |  | &nbsp;&nbsp;100% |

---

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## Ex-23

**Exhibit 23.1**

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (Nos. 333-265459 and 333-190920) of Sprouts Farmers Market, Inc. of our report dated March 2, 2023 relating to the financial statements and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

<br>Phoenix, Arizona<br>March 2, 2023

------

## Ex-31

**<u>Exhibit 31.1</u>**

**CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF**

**THE SARBANES-OXLEY ACT OF 2002**

I, Jack L. Sinclair, certify that:

1. I have reviewed this Annual Report on Form 10-K of Sprouts Farmers Market, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

---

| | |
|:---|:---|
| Date: March 2, 2023 | /s/ Jack L. Sinclair |
|  | Jack L. Sinclair |
|  | Chief Executive Officer <br>(Principal Executive Officer) |

---

------

## Ex-31

**<u>Exhibit 31.2</u>**

**CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF**

**THE SARBANES-OXLEY ACT OF 2002**

I, Lawrence P. Molloy, certify that:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1. I have reviewed this Annual Report on Form 10-K of Sprouts Farmers Market, Inc.;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

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| | |
|:---|:---|
| Date: March 2, 2023 | /s/ Lawrence P. Molloy |
|  | Lawrence P. Molloy |
|  | Chief Financial Officer <br>(Principal Financial Officer) |

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## Ex-32

**<u>Exhibit 32.1</u>**

**CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO**

**18 U.S.C. SECTION 1350**

**AS ADOPTED PURSUANT TO SECTION 906**

**OF THE SARBANES-OXLEY ACT OF 2002**

In connection with the Annual Report of Sprouts Farmers Market, Inc., (the "Company") on Form 10-K for the fiscal year ended January 1, 2023 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Jack L. Sinclair, Chief Executive Officer of the Company, certify, based on my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (15 U.S.C. 78m(a) or 78o(d)); and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

---

| | |
|:---|:---|
| Date: March 2, 2023 | /s/ Jack L. Sinclair |
|  | Jack L. Sinclair |
|  | Chief Executive Officer |
|  | (Principal Executive Officer) |

---

This certification accompanies the Report to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Report), irrespective of any general incorporation language contained in such filing.

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## Ex-32

**<u>Exhibit 32.2</u>**

**CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO**

**18 U.S.C. SECTION 1350**

**AS ADOPTED PURSUANT TO SECTION 906**

**OF THE SARBANES-OXLEY ACT OF 2002**

In connection with the Annual Report of Sprouts Farmers Market, Inc., (the "Company") on Form 10-K for the fiscal year ended January 1, 2023 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Lawrence P. Molloy, Chief Financial Officer of the Company, certify, based on my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (15 U.S.C. 78m(a) or 78o(d)); and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

---

| | |
|:---|:---|
| Date: March 2, 2023 | /s/ Lawrence P. Molloy |
|  | Lawrence P. Molloy |
|  | Chief Financial Officer |
|  | (Principal Financial Officer) |

---

This certification accompanies the Report to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Report), irrespective of any general incorporation language contained in such filing.

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