Pottery Barn 2007 Annual Report Download - page 42

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similar events of default as the credit facility. Interest on amounts outstanding under the letter of credit facilities
accrues at the lender’s prime rate (or if greater, the average rate on overnight federal funds plus one-half of one
percent). As of February 3, 2008, an aggregate of $134,717,000 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 February 3, 2008. The latest expiration possible for any future letters of credit issued
under the facilities is February 4, 2009.
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. We made annual rental payments of approximately $3,820,000, $3,693,000 and $3,753,000, plus
applicable taxes, insurance and maintenance expenses during fiscal 2007, fiscal 2006 and fiscal 2005,
respectively.
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. We made annual rental payments of approximately $4,176,000, $4,180,000 and $4,181,000, plus
applicable taxes, insurance and maintenance expenses, during fiscal 2007, fiscal 2006 and fiscal 2005,
respectively.
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 included an option to lease an additional 390,000 square feet of the same distribution center, which we
exercised, and began occupying this space in fiscal 2006. We made annual rental payments of approximately
$2,968,000, $2,968,000 and $1,927,000 plus applicable taxes, insurance and maintenance expenses fiscal 2007,
fiscal 2006 and fiscal 2005, respectively.
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 February 3, 2008, the current tenant had not vacated the premises. We made annual
rental payments of approximately $3,610,000, $3,397,000 and $3,339,000, plus applicable taxes, insurance and
maintenance expenses, during fiscal 2007, fiscal 2006 and fiscal 2005, respectively.
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. We made annual rental payments of approximately $1,059,000, $1,025,000 and $913,000, plus applicable
taxes, insurance and maintenance expenses, during fiscal 2007, fiscal 2006 and fiscal 2005, respectively.
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. We
made annual rental payments of approximately $1,987,000 and $1,247,000, plus applicable taxes, insurance and
maintenance expenses in fiscal 2007 and fiscal 2006, respectively.
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