Pottery Barn 2009 Annual Report Download - page 65

The following table summarizes the activity related to our gross unrecognized tax benefits:
Dollars in thousands
Jan. 31, 2010
(52 Weeks)
Feb. 1, 2009
(52 Weeks)
Feb. 3, 2008
(53 Weeks)
Balance at beginning of year $ 16,243 $ 35,211 $ 30,981
Increases related to current year tax positions 1,029 2,018 7,076
Increases for tax positions for prior years 655 178 712
Decreases for tax positions for prior years (179) (1,628) (1,010)
Settlements (329) (18,469) (1,979)
Lapses in statute of limitations (1,553) (1,067) (569)
Balance at end of year $ 15,866 $ 16,243 $ 35,211
As of January 31, 2010, February 1, 2009 and February 3, 2008 we had $15,866,000, $16,243,000 and
$35,211,000, respectively, of gross unrecognized tax benefits, of which $10,594,000, $10,558,000 and
$22,634,000, respectively, would, if recognized, affect the effective tax rate.
We accrue interest and penalties related to unrecognized tax benefits in the provision for income taxes. As of
January 31, 2010 and February 1, 2009, our accruals, primarily for the payment of interest, totaled $5,081,000,
and $6,450,000, respectively.
Due to the potential resolution of state issues, it is reasonably possible that the balance of our gross unrecognized
tax benefits balance could decrease within the next twelve months by a range of zero to $4,400,000.
We file income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. We have
concluded all U.S. federal income tax matters through 2005. Substantially all material state, local and foreign
income tax examinations have been concluded for years through 1999.
Note E: Accounting for Leases
Operating Leases
We lease store locations, distribution centers, customer care centers, corporate facilities and certain equipment
for original terms ranging generally from 2 to 22 years (typically 12 years for retail locations). Certain leases
contain renewal options for periods up to 20 years (typically 5-12 years for retail locations). 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.
Total rental expense for all operating leases was as follows:
Fiscal Year Ended
Dollars in thousands
Jan. 31, 2010
(52 Weeks)
Feb. 1, 2009
(52 Weeks)
Feb. 3, 2008
(53 Weeks)
Rent expense $ 189,404 $ 192,579 $ 175,675
Contingent rent expense 33,994 32,268 35,731
Rent expense before deferred lease incentive income 223,398 224,847 211,406
Deferred lease incentive income (36,799) (31,325) (29,449)
Less: sublease rental income (326) (175) (46)
Total rent expense1$ 186,273 $ 193,347 $ 181,911
1Excludes all other occupancy-related costs including depreciation, common area maintenance, utilities and property taxes.
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Form 10-K