Pottery Barn 2006 Annual Report Download - page 66

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.
In May 2006, we entered into an agreement to lease a 418,000 square foot distribution facility located in South
Brunswick, New Jersey. The lease has an initial term of two years, with two optional two-year renewals. During
fiscal 2006, we made annual rental payments of approximately $1,247,000, plus applicable taxes, insurance and
maintenance expenses.
Total rental expense for all operating leases was as follows:
Fiscal Year Ended
Dollars in thousands Jan. 28, 2007 Jan. 29, 2006 Jan. 30, 2005
Minimum rent expense $130,870 $119,440 $110,618
Contingent rent expense 35,020 33,529 26,724
Less: sublease rental income (39) (62) (59)
Total rent expense $165,851 $152,907 $137,283
The aggregate minimum annual rental payments under noncancelable operating leases (excluding the Memphis-
based distribution facilities) in effect at January 28, 2007 were as follows:
Dollars in thousands
Minimum Lease
Commitments1
Fiscal 2007 $ 191,638
Fiscal 2008 186,959
Fiscal 2009 179,484
Fiscal 2010 168,498
Fiscal 2011 151,921
Thereafter 713,042
Total $ 1,591,542
1Projected payments include only those amounts that are fixed and determinable as of the reporting date. We currently pay
rent for certain store locations based on a percentage of store sales if a specified store sales threshold or contractual
obligations of the landlord have not been met. Projected payments for these locations are based on minimum rent, as future
store sales cannot be predicted with certainty.
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, our Chairman of the Board of Directors and Chief Executive Officer and James A. McMahan, a Director
Emeritus, both of whom are significant shareholders. 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.
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