Pottery Barn 2006 Annual Report Download - page 27

liability is relieved and recorded within selling, general and administrative expenses. In the event that a state or
states were to require that these unredeemed certificates and credits be escheated to that state or states, then our
business and operating results would be harmed.
We may experience fluctuations in our tax obligations and effective tax rate.
We are subject to income taxes in many U.S. and Canadian jurisdictions. We record tax expense based on our
estimates of future payments, which include reserves for estimates of probable settlements of foreign and
domestic tax audits. At any one time, many tax years are subject to audit by various taxing jurisdictions. The
results of these audits and negotiations with taxing authorities may affect the ultimate settlement of these issues.
As a result, we expect that throughout the year there could be ongoing variability in our quarterly tax rates as
taxable events occur and exposures are re-evaluated. Further, our effective tax rate in a given financial statement
period may be materially impacted by changes in the mix and level of earnings or by changes to existing
accounting rules or regulations. For example, we will adopt FASB Interpretation No. (“FIN”) 48, “Accounting
for Uncertainty in Income Taxes – An Interpretation of FASB Statement No. 109,” in the first quarter of fiscal
2007, which may have an impact on our effective tax rate.
We rely on the services of key personnel, whose knowledge of our business and expertise would be difficult to
replace.
Our future success depends to a significant degree on the skills, experience and efforts of key personnel in our
senior management, whose vision for our company, knowledge of our business and expertise would be difficult
to replace. If any of our key employees leaves, is seriously injured or is unable to work, and we are unable to find
a qualified replacement, we may be unable to execute our business strategy.
In addition, our main offices are located in the San Francisco Bay Area, where competition for personnel with
retail and technology skills is intense. If we fail to identify, attract, retain and motivate these skilled personnel,
our business may be harmed. Further, in the event we need to hire additional personnel, we may experience
difficulties due to significant competition for highly skilled personnel in our market.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our gross leased store space, as of January 28, 2007, totaled approximately 5,451,000 square feet for 588 stores
compared to approximately 5,035,000 square feet for 570 stores, as of January 29, 2006. All of the existing stores
are leased by us with original terms ranging generally from 5 to 22 years. Certain leases contain renewal options
for periods of 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 have 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 for more information.
We lease distribution facility space in the following locations:
Location Square Footage (Approximate)
Olive Branch, Mississippi 3,275,000 square feet
Memphis, Tennessee 1,523,000 square feet
Cranbury, New Jersey 781,000 square feet
South Brunswick, New Jersey 418,000 square feet
15
Form 10-K