Pottery Barn 2011 Annual Report Download - page 65

Credit Facility
We have a credit facility that provides for a $300,000,000 unsecured revolving line of credit that may be used for
loans or letters of credit. Prior to March 23, 2015, we may, upon notice to the lenders, request an increase in the
credit facility of up to $200,000,000, to provide for a total of $500,000,000 of unsecured revolving credit. The
credit facility contains certain financial covenants, including a maximum leverage ratio (funded debt adjusted for
lease and rent expense to earnings before interest, income tax, depreciation, amortization and rent expense
“EBITDAR”), and covenants limiting our ability to dispose of assets, make acquisitions, be acquired (if a default
would result from the acquisition), incur indebtedness, grant liens and make investments. The credit facility
contains events of default that include, among others, non-payment of principal, interest or fees, violation of
covenants, inaccuracy of representations and warranties, bankruptcy and insolvency events, material judgments,
cross-defaults to material indebtedness and events constituting a change of control. The occurrence of an event of
default will increase the applicable rate of interest by 2.0% and could result in the acceleration of our obligations
under the credit facility and an obligation of any or all of our U.S. subsidiaries that have guaranteed the credit
facility to pay the full amount of our obligations under the credit facility. As of January 29, 2012, we were in
compliance with our financial covenants under the credit facility and, based on current projections, we expect to
be in compliance throughout fiscal 2012. The credit facility matures on September 23, 2015, at which time all
outstanding borrowings must be repaid and all outstanding letters of credit must be cash collateralized.
We may elect interest rates calculated at (i) Bank of America’s prime rate (or, if greater, the average rate on
overnight federal funds plus one-half of one percent, or a rate based on LIBOR plus one percent) plus a margin
based on our leverage ratio or (ii) LIBOR plus a margin based on our leverage ratio. During fiscal 2011 and fiscal
2010, we had no borrowings under the credit facility, and no amounts were outstanding as of January 29, 2012 or
January 30, 2011. Additionally, as of January 29, 2012, $9,420,000 in issued but undrawn standby letters of
credit was outstanding under the credit facility. The standby letters of credit were issued to secure the liabilities
associated with workers’ compensation and other insurance programs.
Letter of Credit Facilities
We have three unsecured letter of credit reimbursement facilities for a total of $90,000,000, each of which
matures on August 31, 2012. The letter of credit facilities contain covenants and provide for events of default that
are consistent with our unsecured revolving line of credit. Interest on unreimbursed amounts 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) plus 2.0%. As of January 29, 2012, an aggregate of $23,544,000 was outstanding under
the letter of credit facilities, which represent only a future commitment to fund inventory purchases to which we
had not taken legal title. The latest expiration possible for any future letters of credit issued under the facilities is
January 28, 2013.
Note D: Income Taxes
The components of earnings before income taxes, by tax jurisdiction, are as follows:
Fiscal Year Ended
Dollars in thousands Jan. 29, 2012 Jan. 30, 2011 Jan. 31, 2010
United States $ 367,620 $ 308,033 $ 111,689
Foreign 14,210 15,027 8,600
Total earnings before income taxes $ 381,830 $ 323,060 $ 120,289
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Form 10-K