Pottery Barn 2005 Annual Report Download - page 44

outstanding under the letter of credit facilities. Such letters of credit represent only a future commitment to fund
inventory purchases to which we have not taken legal title as of January 29, 2006. The latest expiration possible
for any future letters of credit issued under the agreements is February 6, 2007.
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 29, 2006, approximately $31,249,000 was
outstanding on the bonds. During fiscal 2005, we made annual rental payments of approximately $3,753,000,
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 29, 2006, approximately $34,396,000 was outstanding on
the bonds. During fiscal 2005, we made 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 780,000 square feet of a 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 390,000 square feet of the same distribution center. We
exercised this option during fiscal 2005, however, as of January 29, 2006, we had not occupied this space. During
fiscal 2005, we made 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. As of January 29, 2006, the current tenant had not yet vacated the premises. During fiscal
2005, we made annual rental payments of approximately $3,339,000, 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. During fiscal 2005, we made annual rental payments of approximately $913,000, plus applicable taxes,
insurance and maintenance expenses.
In addition, we are party to a variety of contractual agreements under which we may be obligated to indemnify
the other party for certain matters. These contracts primarily relate to our commercial contracts, operating leases,
trademarks, intellectual property, financial agreements and various other agreements. Under these contracts, we
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