Pottery Barn 2004 Annual Report Download - page 57

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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.
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
Revenue Bonds, Series 1999, issued by the Mississippi Business Finance Corporation. The bonds are
collateralized by the distribution facility. As of January 30, 2005, approximately $35,235,000 was outstanding on
the bonds. We are required to make annual rental payments of approximately $4,181,000, plus applicable taxes,
insurance and maintenance expenses.
In December 2003, we entered into an agreement to lease an additional 780,000 square foot distribution facility
located in Olive Branch, Mississippi. The lease has an initial term of six years, with two optional two-year
renewals. The agreement includes an option to lease an additional 333,000 square feet of the same distribution
center. As of January 30, 2005, we had not exercised this option, however, we expect to exercise this option
during fiscal 2005. We are required to make annual rental payments of approximately $1,927,000, plus
applicable taxes, insurance and maintenance expenses.
On February 2, 2004, we entered into an agreement to lease 781,000 square feet of a distribution center located in
Cranbury, New Jersey. The lease has an initial term of seven years, with three optional five-year renewals. The
agreement requires us to lease an additional 219,000 square feet of the facility in the event the current tenant
vacates the premises. We are required to make annual rental payments of approximately $3,397,000, plus
applicable taxes, insurance and maintenance expenses.
On August 18, 2004, we entered into an agreement to lease a 500,000 square foot distribution facility located in
Memphis, Tennessee. The lease has an initial term of four years, with one optional three-year and nine-month
renewal. We are required to make annual rental payments of approximately $1,025,000, plus applicable taxes,
insurance and maintenance expenses.
Total rental expense for all operating leases was as follows:
Fiscal Year Ended
Dollars in thousands Jan. 30, 2005 Feb. 1, 20041Feb. 2, 20031
Minimum rent expense $110,618 $101,377 $ 95,173
Contingent rent expense 26,724 21,796 19,626
Less: Sublease rental income (59) (90) (503)
Total rent expense $137,283 $123,083 $114,296
1Includes rent expense for our Memphis-based distribution facilities which were consolidated by us on February 1, 2004. See
Note F.
50