Bed, Bath and Beyond 2007 Annual Report Download - page 27

BED BATH& BEYOND ANNUAL REPORT 2007
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The Company recognizes accrued interest and penalties related to gross unrecognized tax benefits in the provision for income
taxes. As of March 4, 2007, the liability for gross unrecognized tax benefits included approximately $27.5 million of accrued
interest.
Set forth below is the tabular roll-forward of the gross unrecognized tax benefits from uncertain tax positions for the fiscal
year ended March 1, 2008:
(in thousands)
Balance as of March 4, 2007 (FIN 48 Adoption Date) $ 163,297
Increase related to current year positions 16,920
Increase related to prior year positions 36,584
Decrease related to prior year positions (81,330)
Settlements (44,175)
Lapse of statute of limitations (2,617)
Other (5,540)
Balance as of March 1, 2008 $ 83,139
At March 1, 2008, the Company has recorded approximately $7.7 million and $75.4 million of gross unrecognized tax benefits in
current and non-current taxes payable, respectively, on the consolidated balance sheet of which approximately $76.0 million
would impact the Company’s effective tax rate. As of March 1, 2008, the liability for gross unrecognized tax benefits included
approximately $14.3 million of accrued interest. For the year ended March 1, 2008, the Company recorded a reduction of interest
for gross unrecognized tax benefits of approximately $1.9 million in the consolidated statement of earnings.
The Company anticipates that any adjustments to gross unrecognized tax benefits which will impact income tax expense, due to
the settlement of audits and the expiration of statutes of limitations, will not exceed $1.0 million in the next twelve months.
However, actual results could differ from those currently anticipated.
As of March 1, 2008, the Company operated in 49 states, the District of Columbia, Puerto Rico and Canada and files income tax
returns in the United States and various state, local and international jurisdictions. The Company is currently under examination
by the Internal Revenue Service for tax years 2001 through 2005. The Company is also open to examination for state and local
jurisdictions with varying statutes of limitations, generally ranging from three to five years.
For fiscal 2007, the effective tax rate is comprised of the Federal statutory income tax rate of 35.00%, the State income tax rate,
net of Federal benefit, of 2.57% and other income tax benefits of 2.62%. Included in other income tax benefits are the settlement
of certain discrete tax items from ongoing examinations, the recognition of favorable discrete state tax items and from changing
the blended state tax rate of deferred income taxes. For fiscal 2006, the effective tax rate is comprised of the Federal statutory
income tax rate of 35.00%, the State income tax rate, net of Federal benefit, of 3.06% and other income tax benefits of 1.76%.
For fiscal 2005, the effective tax rate is comprised of the Federal statutory income tax rate of 35.00%, the State income tax rate,
net of Federal benefit, of 2.49% and other income tax benefits of 0.09%.
8. TRANSACTIONS AND BALANCES WITH RELATED PARTIES
A. In fiscal 2002, the Company had an interest in certain life insurance policies on the lives of its Co-Chairmen and their spouses.
The Company’s interest in these policies was equivalent to the net premiums paid by the Company. The agreements relating to
the Company’s interest in the life insurance policies on the lives of its Co-Chairmen and their spouses were terminated in fiscal
2003. Upon termination in fiscal 2003, the Co-Chairmen paid to the Company $5.4 million, representing the total amount of
premiums paid by the Company under the agreements and the Company was released from its contractual obligation to make
substantial future premium payments. In order to confer a benefit to its Co-Chairmen in substitution for the aforementioned
terminated agreements, the Company has agreed to pay to the Co-Chairmen, at a future date, an aggregate amount of
$4.2 million, which is included in accrued expenses and other current liabilities as of March 1, 2008 and March 3, 2007.
B. In fiscal 2007, 2006 and 2005, the Company leased office and retail space from entities controlled by management of CTS.
In fiscal 2007, the Company leased retail space from entities controlled by management of buybuy BABY. The Company
paid such entities occupancy costs of approximately $7.1 million, $6.3 million and $6.5 million in fiscal 2007, 2006 and 2005,
respectively.