Pottery Barn 2005 Annual Report Download - page 65

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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.
Total rental expense for all operating leases was as follows:
Fiscal Year Ended
Dollars in thousands Jan. 29, 2006 Jan. 30, 2005 Feb. 1, 20041
Minimum rent expense $ 119,440 $ 110,618 $ 101,377
Contingent rent expense 33,529 26,724 21,796
Less: Sublease rental income (62) (59) (90)
Total rent expense $ 152,907 $ 137,283 $ 123,083
1Includes rent expense for our Memphis-based distribution facilities which were consolidated by us on February 1, 2004. See
Note F.
The aggregate minimum annual rental payments under noncancelable operating leases (excluding the Memphis-
based distribution facilities) in effect at January 29, 2006 were as follows:
Dollars in thousands
Minimum Lease
Commitments1
Fiscal 2006 $ 178,846
Fiscal 2007 176,891
Fiscal 2008 170,041
Fiscal 2009 160,569
Fiscal 2010 149,092
Thereafter 672,358
Total $ 1,507,797
1Projected payments include only those amounts that are fixed and determinable as of the reporting date.
Note F: Consolidation of Memphis-Based Distribution Facilities
Our Memphis-based distribution facilities include an operating lease entered into in July 1983 for a distribution
facility in Memphis, Tennessee. The lessor is a general partnership (“Partnership 1”) comprised of W. Howard
Lester, Chairman of the Board of Directors and a significant shareholder, and James A. McMahan, a Director
Emeritus and a significant shareholder. Partnership 1 does not have operations separate from the leasing of this
distribution facility and does not have lease agreements with any unrelated third parties.
Partnership 1 financed the construction of this distribution facility through the sale of a total of $9,200,000 of
industrial development bonds in 1983 and 1985. Annual principal payments and monthly interest payments are
required through maturity in December 2010. The Partnership 1 industrial development bonds are collateralized
by the distribution facility and the individual partners guarantee the bond repayments. As of January 29, 2006,
$1,887,000 was outstanding under the Partnership 1 industrial development bonds.
During fiscal 2005, we made annual rental payments of approximately $618,000 plus interest on the bonds
calculated at a variable rate determined monthly (3.5% in January 2006), applicable taxes, insurance and
53
Form 10-K