Pottery Barn 2004 Annual Report Download - page 30

may be used for loans or letters of credit. Prior to August 22, 2009, we may, upon notice to the lenders, request
an increase in the new credit facility of up to $100,000,000, to provide for a total of $400,000,000 of unsecured
revolving credit. The new credit facility contains events of default that include, among others, non-payment of
principal, interest or fees, inaccuracy of representations and warranties, violation of covenants, bankruptcy and
insolvency events, material judgments, cross defaults to certain other indebtedness and events constituting a
change of control. The occurrence of an event of default will increase the applicable rate of interest by 2.0% and
could result in the acceleration of our obligations under the new credit facility, and an obligation of any or all of
our U.S. subsidiaries to pay the full amount of our obligations under the new credit facility. The new credit
facility matures on February 22, 2010, at which time all outstanding borrowings must be repaid and all
outstanding letters of credit must be cash collateralized.
We may elect interest rates calculated at Bank of America’s prime rate (or, if greater, the average rate on
overnight federal funds plus one-half of one percent) or LIBOR plus a margin based on our leverage ratio.
During fiscal 2004 and fiscal 2003, no amounts were borrowed under the credit facility, however, as of January
30, 2005, $31,763,000 in issued but undrawn standby letters of credit were outstanding under the credit facility.
As of January 30, 2005, we were in compliance with our financial covenants under the credit facility.
Letter of Credit Facilities
We have three unsecured commercial letter of credit reimbursement facilities for an aggregate of $125,000,000,
each of which expires on July 2, 2005. As of January 30, 2005, an aggregate of $100,552,000 was outstanding
under the letter of credit facilities. Such letters of credit represent only a future commitment to fund inventory
purchases to which we had not taken legal title as of January 30, 2005. The latest expiration for the letters of
credit issued under the facilities is November 29, 2005.
Standby Letters of Credit
As of January 30, 2005, we had issued and outstanding standby letters of credit under the credit facility in an
aggregate amount of $31,763,000. The standby letters of credit were issued to secure the liabilities associated
with workers’ compensation, other insurance programs and the Mississippi Debt Transaction.
OFF BALANCE SHEET ARRANGEMENTS
Operating Leases
We lease store locations, warehouses, corporate facilities, call centers and certain equipment under operating and
capital leases for original terms ranging generally from 3 to 22 years. Certain leases contain renewal options for
periods up to 20 years. The rental payment requirements in our store leases are typically structured as either
minimum rent, minimum rent plus additional rent based on a percentage of store sales if a specified store sales
threshold is exceeded, or rent based on a percentage of store sales if a specified store sales threshold or
contractual obligations of the landlord have not been met. See Notes A and E to our Consolidated Financial
Statements.
We have an operating lease for a 1,002,000 square foot retail distribution facility located in Olive Branch,
Mississippi. The lease has an initial term of 22.5 years, expiring January 2022, with two optional five-year
renewals. The lessor, an unrelated party, is a limited liability company. The construction and expansion of the
distribution facility was financed by the original lessor through the sale of $39,200,000 Taxable Industrial
Development Revenue Bonds, Series 1998 and 1999, issued by the Mississippi Business Finance Corporation.
The bonds are collateralized by the distribution facility. As of January 30, 2005, approximately $32,180,000 was
outstanding on the bonds. We are required to make annual rental payments of approximately $3,816,000, plus
applicable taxes, insurance and maintenance expenses.
We have an operating lease for an additional 1,103,000 square foot retail distribution facility located in Olive
Branch, Mississippi. The lease has an initial term of 22.5 years, expiring January 2023, with two optional five-
year renewals. The lessor, an unrelated party, is a limited liability company. The construction of the distribution
facility was financed by the original lessor through the sale of $42,500,000 Taxable Industrial Development
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Form 10-K