Pottery Barn 2006 Annual Report Download - page 45

Letter of Credit Facilities
We have five unsecured commercial letter of credit reimbursement facilities for an aggregate of $165,000,000,
each of which expires on September 8, 2007. As of January 28, 2007, an aggregate of $124,860,000 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 28, 2007. The latest expiration possible
for any future letters of credit issued under the facilities is February 5, 2008.
OFF BALANCE SHEET ARRANGEMENTS
Operating Leases
We lease store locations, warehouses, corporate facilities, call centers and certain equipment 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
has not been met. Contingent rental payments, including rental payments that are based on a percentage of sales,
cannot be predicted with certainty at the onset of the lease term. Accordingly, any contingent rental payments are
recorded as incurred each period when the sales threshold is probable and are excluded from our calculation of
deferred rent liability. 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 28, 2007, approximately $30,301,000 was
outstanding on the bonds. During fiscal 2006, we made annual rental payments of approximately $3,693,000,
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 28, 2007, approximately $33,481,000 was outstanding on
the bonds. During fiscal 2006, we made annual rental payments of approximately $4,180,000, 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 and began occupying this space in fiscal 2006. During fiscal 2006, we made annual rental
payments of approximately $2,968,000, plus applicable taxes, insurance and maintenance expenses.
In February 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 allows us to lease an additional 219,000 square feet of the facility in the event the current tenant
vacates the premises. As of January 28, 2007, the current tenant had not vacated the premises. During fiscal
2006, we made annual rental payments of approximately $3,397,000, plus applicable taxes, insurance and
maintenance expenses.
In August 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 2006, we made annual rental payments of approximately $1,025,000, plus applicable
taxes, insurance and maintenance expenses.
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Form 10-K