Commitments and Contingencies
(a)Operating Leases
The Company conducts a major portion of its retail operations from leased premises. Initial terms of the leases are typically 20 years, followed by renewal options at five year intervals, and may include rent escalation clauses. Minimum rentals represent fixed lease obligations, including insurance and maintenance to the extent they are fixed in the lease. Contingent rentals represent payment of variable lease obligations, including real estate taxes, insurance, maintenance and, for certain premises, additional rentals based on a percentage of sales in excess of stipulated minimums (excess rent). The payment of variable real estate taxes, insurance and maintenance is generally based on the Company’s pro-rata share of total shopping center square footage. The Company recognizes rent expense for operating leases with rent escalation clauses on a straight-line basis over the applicable lease term. The Company estimates excess rent, where applicable, based on annual sales projections and uses the straight-line method to amortize this cost to rent expense. The annual sales projections are reviewed periodically and adjusted if necessary. Additionally, the Company has operating leases for certain transportation and other equipment.
Total rental expense for 2013, 2012 and 2011 is as follows:
|
| | | | | | | | | | |
| | 2013 | | 2012 | | 2011 |
| | (Amounts are in thousands) |
Minimum rentals | | $ | 429,755 |
| | 432,450 |
| | 410,590 |
|
Contingent rentals | | 116,445 |
| | 112,819 |
| | 110,900 |
|
Sublease rental income | | (4,820 | ) | | (4,564 | ) | | (4,699 | ) |
| | $ | 541,380 |
| | 540,705 |
| | 516,791 |
|
As of December 28, 2013, future minimum lease payments for all noncancelable operating leases and related subleases are as follows:
|
| | | | | | | | | | | | | |
Year | Minimum Rental Commitments | | Sublease Rental Income | | Net |
| | (Amounts are in thousands) |
2014 | | $ | 436,827 |
| | | | 5,115 |
| | | 431,712 |
|
2015 | | 415,546 |
| | | | 3,185 |
| | | 412,361 |
|
2016 | | 390,627 |
| | | | 1,913 |
| | | 388,714 |
|
2017 | | 364,356 |
| | | | 1,609 |
| | | 362,747 |
|
2018 | | 336,491 |
| | | | 1,261 |
| | | 335,230 |
|
Thereafter | | 2,242,082 |
| | | | 2,901 |
| | | 2,239,181 |
|
| | $ | 4,185,929 |
| | | | 15,984 |
| | | 4,169,945 |
|
The Company also owns shopping centers which are leased to tenants for minimum monthly rentals plus, in certain instances, contingent rentals. Minimum rentals represent fixed lease commitments, including insurance and maintenance. Contingent rentals represent variable lease obligations, including real estate taxes, insurance, maintenance and, in certain instances, excess rent. Rental income was $47,056,000, $40,367,000 and $36,057,000 for 2013, 2012 and 2011, respectively. The amounts of minimum future rental payments to be received under noncancelable operating leases are $38,814,000, $32,218,000, $25,634,000, $19,524,000 and $13,384,000 for the years 2014 through 2018, respectively, and $54,823,000 thereafter.
(b)Letters of Credit
As of December 28, 2013, the Company had $6,839,000 outstanding in trade letters of credit and $4,736,000 in standby letters of credit to support certain purchase obligations.
(c)Litigation
The Company is subject from time to time to various lawsuits, claims and charges arising in the normal course of business. The Company believes its recorded reserves are adequate in light of the probable and estimable liabilities. The estimated amount of reasonably possible losses for lawsuits, claims and charges, individually and in the aggregate, is considered to be immaterial. In the opinion of management, the ultimate resolution of these legal proceedings will not have a material adverse effect on the Company’s financial condition, results of operations or cash flows.
