Pottery Barn 2007 Annual Report Download - page 70

portion that is invested in the company internal revenue stock fund at any time. The profit sharing and ESOP
components of the Plan are considered a single plan under Code section 414(l). Our contributions to the plan
were $5,336,000, $3,467,000 and $3,322,000 in fiscal 2007, fiscal 2006 and fiscal 2005, respectively.
We have a nonqualified executive deferred compensation plan that provides supplemental retirement income
benefits for a select group of management and other certain highly compensated employees. This plan permits
eligible employees to make salary and bonus deferrals that are 100% vested. We have an unsecured obligation to
pay in the future the value of the deferred compensation adjusted to reflect the performance, whether positive or
negative, of selected investment measurement options, chosen by each participant, during the deferral period. As
of February 3, 2008 and January 28, 2007, $16,105,000 and $13,322,000, respectively, was included in other
long-term obligations. Additionally, we have purchased life insurance policies on certain participants to
potentially offset these unsecured obligations. The cash surrender value of these policies was $12,758,000 and
$10,688,000 as of February 3, 2008 and January 28, 2007, respectively, and was included in other assets.
Note K: Financial Guarantees
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
may provide certain routine indemnifications relating to representations and warranties or personal injury
matters. The terms of these indemnifications range in duration and may not be explicitly defined. Historically, we
have not made significant payments for these indemnifications. We believe that if we were to incur a loss in any
of these matters, the loss would not have a material effect on our financial condition or results of operations.
Note L: Commitments and Contingencies
On September 30, 2004, we entered into a five-year service agreement with IBM to host and manage certain
aspects of our data center information technology infrastructure. On July 10, 2007, we amended our service
agreement with IBM and as a result, we have assumed responsibility for the operation of portions of our data
center information technology infrastructure. Under the terms of the agreement, we are required to continue to
pay both fixed and variable charges over the life of the agreement. The variable charges are primarily based on
CPU hours, storage capacity and support services that are expected to fluctuate throughout the term of the
agreement. We also remain subject to a minimum charge over the term of the agreement based on both a fixed
and variable component calculated as a percentage of the total estimated service charges over the five-year term
of the agreement. As of February 3, 2008, we estimate the remaining minimum charge to be approximately
$4,670,000. The agreement can be terminated at any time for cause or convenience. In the event the agreement is
terminated for convenience, a graduated termination fee will be assessed based on the time period remaining in
the contract term. As of February 3, 2008, this termination fee was approximately $1,410,000.
We are involved in lawsuits, claims and proceedings incident to the ordinary course of our business. These
disputes, which are not currently material, are increasing in number as our business expands and our company
grows larger. Litigation is inherently unpredictable. Any claims against us, whether meritorious or not, could be
time consuming, result in costly litigation, require significant amounts of management time and result in the
diversion of significant operational resources. The results of these lawsuits, claims and proceedings cannot be
predicted with certainty. However, we believe that the ultimate resolution of these current matters will not have a
material adverse effect on our consolidated financial statements taken as a whole.
Note M: Segment Reporting
We have two reportable segments, retail and direct-to-customer. The retail segment has five merchandising
concepts, which sell products for the home (Williams-Sonoma, Pottery Barn, Pottery Barn Kids, West Elm and
Williams-Sonoma Home). The five retail merchandising concepts are operating segments, which have been
aggregated into one reportable segment, retail. The direct-to-customer segment has six merchandising concepts
(Williams-Sonoma, Pottery Barn, Pottery Barn Kids, PBteen, West Elm and Williams-Sonoma Home) and sells
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