Pottery Barn 2011 Annual Report Download - page 68

The aggregate future minimum annual cash rental payments under non-cancelable operating leases, excluding the
one Memphis-based distribution facility consolidated by us (see Note F), in effect at January 29, 2012 were as
follows:
Dollars in thousands Lease Commitments1,2
Fiscal 2012 $ 221,591
Fiscal 2013 199,852
Fiscal 2014 179,440
Fiscal 2015 154,731
Fiscal 2016 140,006
Thereafter 490,619
Total $1,386,239
1Represents future projected cash payments and, therefore, is not necessarily representative of future expected rental
expense.
2Projected cash payments include only those amounts that are fixed and determinable as of the reporting date. We currently
pay rent for certain store locations based on a percentage of store sales if a specified store sales threshold is or is not met
or if contractual obligations of the landlord have not been met. Projected payments for these locations are based on
minimum rent, which is generally higher than rent based on a percentage of store sales, as future store sales cannot be
predicted with certainty. In addition, projected cash payments do not include any benefit from deferred lease incentive
income, which is reflected within “Total rent expense” above.
Note F: Memphis-Based Distribution Facilities
Our Memphis-based distribution facilities include an operating lease entered into in July 1983 for a distribution
facility in Memphis, Tennessee. The lessor is a general partnership (“Partnership 1”) comprised of the estate of
W. Howard Lester (“Mr. Lester”), our former Chairman of the Board and Chief Executive Officer, and the estate
of James A. McMahan (“Mr. McMahan”), a former Director Emeritus and significant stockholder. Partnership 1
does not have operations separate from the leasing of this distribution facility and does not have lease agreements
with any unrelated third parties. The terms of the lease automatically renewed until the bonds that financed the
construction of the facility were fully repaid in December 2010, at which time we continued to rent the facility on
a month-to-month basis. In October 2011, we entered into an agreement with Partnership 1 to lease the facilities
through April 2013. During fiscal 2011, we made rental payments associated with the lease of $618,000. We
made annual rental payments in fiscal 2010 and 2009 of approximately $618,000, plus interest on the bonds.
Our other Memphis-based distribution facility includes an operating lease entered into in August 1990 for
another distribution facility that is adjoined to the Partnership 1 facility in Memphis, Tennessee. The lessor is a
general partnership (“Partnership 2”) comprised of the estate of Mr. Lester, the estate of Mr. McMahan and two
unrelated parties. Partnership 2 does not have operations separate from the leasing of this distribution facility and
does not have lease agreements with any unrelated third parties. The term of the lease automatically renews on an
annual basis until the bonds that financed the construction of the facility are fully repaid in August 2015. As of
January 29, 2012, $6,924,000 was outstanding under the Partnership 2 bonds. We made annual rental payments
of approximately $2,516,000, $2,567,000 and $2,582,000 plus applicable taxes, insurance and maintenance
expenses in fiscal 2011, fiscal 2010 and fiscal 2009, respectively.
As of January 29, 2012, Partnership 2 qualifies as a variable interest entity and is consolidated by us due to its
related party relationship and our obligation to renew the lease until the bonds are fully repaid. As such, as of
January 29, 2012, our consolidated balance sheet includes $11,975,000 in assets (primarily buildings),
$6,924,000 in debt and $5,051,000 in other long-term liabilities related to the consolidation of the Partnership 2
distribution facility.
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