Pottery Barn 2013 Annual Report Download - page 63

We accrue interest and penalties related to unrecognized tax benefits in the provision for income taxes. As of
February 2, 2014 and February 3, 2013, our accruals for the payment of interest and penalties totaled $2,231,000
and $2,508,000, respectively, primarily related to interest.
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 $0 to $2,000,000.
We file income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. The
Internal Revenue Service (IRS) had concluded examination of our U.S. federal income tax returns for years prior
to fiscal 2011 without any significant adjustments. Substantially all material state, local and foreign income tax
examinations have been concluded through fiscal 2001.
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;
rent based on a percentage of store sales; minimum rent plus additional rent based on a percentage of store sales;
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, such contingent rental
payments are recorded as incurred each period 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
Feb. 2, 2014
(52 Weeks)
Feb. 3, 2013
(53 Weeks)
Jan. 29, 2012
(52 Weeks)
Rent expense $ 201,727 $ 189,060 $ 186,346
Contingent rent expense 34,608 35,634 34,390
Rent expense before deferred lease incentive income 236,335 224,694 220,736
Deferred lease incentive income (25,385) (26,694) (27,547)
Less: sublease rental income (536) (535) (382)
Total rent expense1$ 210,414 $ 197,465 $ 192,807
1Excludes all other occupancy-related costs including depreciation, common area maintenance, utilities and property taxes.
The aggregate future minimum annual cash rental payments under non-cancelable operating leases (excluding the
Memphis-based distribution facility consolidated by us, see Note F) in effect at February 2, 2014 were as follows:
Dollars in thousands Lease Commitments1,2
Fiscal 2014 $ 231,660
Fiscal 2015 207,128
Fiscal 2016 191,569
Fiscal 2017 165,737
Fiscal 2018 146,473
Thereafter 489,032
Total $ 1,431,599
1
Represents future projected cash payments and, therefore, is not necessarily representative of future expected rental expense.
2Projected cash payments include only those amounts that are fixed and determinable as of the reporting date. We currently
pay rent for certain store locations based on a percentage of store sales. Projected payments for these locations are based
on minimum rent, which is generally higher than rent based on a percentage of store sales, as future store sales cannot be
predicted with certainty. We incur other lease obligation expenses, such as common area charges and other executory
costs, which are not fixed in nature and are thus not included in the future projected cash payments reflected above. In
addition, projected cash payments do not include any benefit from deferred lease incentive income, which is reflected
within “Total rent expense” above.
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Form 10-K