Pottery Barn 2012 Annual Report Download - page 65

The aggregate future minimum annual cash rental payments under non-cancelable operating leases (excluding
the Memphis-based distribution facility consolidated by us, see Note F) in effect at February 3, 2013 were as
follows:
Dollars in thousands Lease Commitments1,2
Fiscal 2013 $ 224,579
Fiscal 2014 207,696
Fiscal 2015 181,233
Fiscal 2016 166,573
Fiscal 2017 142,769
Thereafter 521,403
Total $1,444,253
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. 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. We incur other lease obligation expenses, such as common area charges and other executory costs, which are not
fixed in nature and are thus not included in the future projected cash payments reflected above. 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. We
subsequently agreed to lease the facilities from Partnership 1 through June 2013. We made annual rental payments in
fiscal 2012, fiscal 2011 and fiscal 2010 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
February 3, 2013, $5,388,000 was outstanding under the Partnership 2 bonds. We made annual rental payments
of approximately $2,473,000, $2,516,000 and $2,567,000 plus applicable taxes, insurance and maintenance
expenses in fiscal 2012, fiscal 2011 and fiscal 2010, respectively.
As of February 3, 2013, 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
February 3, 2013, our consolidated balance sheet includes $11,535,000 in assets (primarily buildings),
$5,388,000 in debt and $6,147,000 in other long-term liabilities related to the consolidation of the Partnership 2
distribution facility.
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Form 10-K