Pottery Barn 2007 Annual Report Download - page 62

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financial tax liability associated with this foreign dividend to zero. The accumulated remaining undistributed
earnings of all of our foreign subsidiaries were approximately $9,500,000 as of February 3, 2008 and are
sufficient to support our anticipated future cash needs for our foreign operations. We currently intend to utilize
the remainder of these undistributed earnings for an indefinite period of time and will only repatriate such
earnings when it is tax effective to do so. It is currently not practical to estimate the tax liability that might be
payable if these foreign earnings were to be repatriated.
A reconciliation of income taxes at the federal statutory corporate rate to the effective rate is as follows:
Fiscal Year Ended
Feb. 3, 2008
(53 Weeks)
Jan. 28, 2007
(52 Weeks)
Jan. 29, 2006
(52 Weeks)
Federal income taxes at the statutory rate 35.0% 35.0% 35.0%
State income tax rate and other, less federal benefit 3.1% 3.1% 3.4%
Total 38.1% 38.1% 38.4%
Significant components of our deferred tax accounts are as follows:
Dollars in thousands
Feb. 3, 2008
(53 Weeks)
Jan. 28, 2007
(52 Weeks)
Current:
Compensation $ 11,392 $ 11,977
Inventory 22,117 16,210
Accrued liabilities 17,585 16,821
Customer deposits 61,215 47,969
Deferred catalog costs (21,184) (22,878)
Other 718 738
Total current 91,843 70,837
Non-current:
Depreciation 14,616 11,803
Deferred rent 12,390 10,718
Stock-based compensation 17,757 9,972
Deferred lease incentives (23,046) (20,070)
Executive deferral plan 6,214 5,113
State taxes 15,985 —
Other 1,081 1,134
Total non-current 44,997 18,670
Total deferred tax assets, net $136,840 $ 89,507
Note E: Accounting for Leases
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 Note A.
52