Commitments and Contingencies

Leases

The Company leases its office and warehouse facilities and some equipment under non-cancelable lease agreements with initial terms that generally range from one to eleven years. Some of the leases include renewal provisions at the Company’s option. At the inception of the lease, the Company evaluates each agreement to determine whether the lease will be accounted for as an operating or capital lease. The term of the lease used for this evaluation includes renewal option periods only in instances in which the exercise of the renewal option can be reasonably assured and failure to exercise such option would result in an economic penalty. Some of the office leases contain rent escalation clauses and rent holidays. Rent expense is recorded on a straight-line basis over the lease term with the difference between the rent paid and the straight-line rent expense recorded as a deferred rent liability. Lease incentive payments received from the landlord are recorded as deferred rent liabilities and are amortized on a straight-line basis over the lease term as a reduction in rent. For both December 29, 2013 and December 30, 2012, the deferred rent balance related to lease incentives was approximately $1.9 million.

During 2007, the Company made tenant improvements to its U.S. fulfillment center. Due to its financial involvement in the construction of the leased property, the Company recorded the building as property and equipment during the construction period. Upon completion, the transaction did not meet the criteria for sale-leaseback accounting, and accordingly, has been recorded as a long-term financing obligation.

Future minimum lease payments at December 29, 2013 are as follows (in thousands):



	Financing Obligation			Operating Leases
2014	$	51		$	1,414
2015	—			1,323
2016	—			1,170
2017	—			1,071
2018	—			1,087
Thereafter	—			3,148
Total minimum lease payments	51			$	9,213
Less: amounts representing interest	—
Present value of minimum lease payments	51
Residual value	574
Less: current maturities	(51		)
Total long-term financing obligation less current maturities	$	574

Assets under the long-term financing obligation amounted to $0.6 million at December 29, 2013 and $0.7 million at December 30, 2012. These amounts are net of accumulated depreciation of approximately $0.3 million as of December 29, 2013 and December 30, 2012. Such assets are classified within property and equipment, net, in the accompanying balance sheets. The residual value of the long-term financing obligation represents the estimated fair value of the financing at the end of the Company’s lease term. Rent expense, which includes certain common area maintenance costs, was approximately $1.0 million, $0.8 million and $0.9 million for the fiscal years ended December 29, 2013, December 30, 2012 and January 1, 2012, respectively.

Legal Proceedings

In the ordinary course of business, the Company may be subject from time to time to various proceedings, lawsuits, disputes or claims. Although the Company cannot predict with assurance the outcome of any litigation, it does not believe there are currently any such actions that, if resolved unfavorably, would have a material impact on the Company’s financial condition or results of operations.