Pottery Barn 2011 Annual Report Download - page 67

The following table summarizes the activity related to our gross unrecognized tax benefits:
Dollars in thousands Jan. 29, 2012 Jan. 30, 2011 Jan. 31, 2010
Balance at beginning of year $ 11,619 $ 15,866 $ 16,243
Increases related to current year tax positions 1,329 821 1,029
Increases for tax positions for prior years 379 0 655
Decreases for tax positions for prior years (370) (560) (179)
Settlements (2,070) (1,701) (329)
Lapses in statute of limitations (864) (2,807) (1,553)
Balance at end of year $ 10,023 $ 11,619 $ 15,866
As of January 29, 2012, January 30, 2011 and January 31, 2010, we had $10,023,000, $11,619,000, and
$15,866,000, respectively, of gross unrecognized tax benefits, of which $6,738,000, $7,812,000, and
$10,594,000, 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 29, 2012 and January 30, 2011, our accruals, entirely for the payment of interest, totaled $3,983,000 and
$4,062,000, respectively.
Due to the potential resolution of state issues, it is reasonably possible that the balance of our gross unrecognized
tax benefits could decrease within the next twelve months by a range of zero to $5,700,000.
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 fiscal 2007. Substantially all material state, local and
foreign income tax examinations have been concluded through fiscal 2000.
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 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 obligation
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 of being met 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. 29, 2012 Jan. 30, 2011 Jan. 31, 2010
Rent expense $ 186,346 $ 185,979 $ 189,404
Contingent rent expense 34,390 34,856 33,994
Rent expense before deferred lease incentive income 220,736 220,835 223,398
Deferred lease incentive income (27,547) (37,115) (36,799)
Less: sublease rental income (382) (329) (326)
Total rent expense1$ 192,807 $ 183,391 $ 186,273
1Excludes all other occupancy-related costs including depreciation, common area maintenance, utilities and property taxes.
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Form 10-K