Pier 1 2008 Annual Report Download - page 68

In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income
Taxes — An Interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for
uncertainty in tax positions. FIN 48 prescribes the minimum recognition threshold a tax position is required to
meet before being recognized in the financial statements. It also provides guidance on derecognition,
measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition.
The Company adopted the provisions of FIN 48 effective as of the beginning of fiscal 2008. As a result of the
cumulative effect of the adoption, the Company recorded a $5,073,000 decrease in retained earnings. Upon
adoption on March 4, 2007, total reserves for uncertain tax positions were $13,908,000.
On a quarterly and annual basis, the Company accrues for the effects of open uncertain tax positions. A
summary of amounts recorded for unrecognized tax benefits at the beginning and end of fiscal 2008 is
presented below, in thousands:
Unrecognized Tax Benefits — March 4, 2007 . . . ............................... $13,908
Gross increases — tax positions in prior period . . ............................... 1,880
Gross decreases — tax positions in prior period. . ............................... (1,400)
Settlements ........................................................... (449)
Unrecognized Tax Benefits — March 1, 2008 . . . ............................... $13,939
If the Company were to prevail on all unrecognized tax benefits recorded, this entire reserve for uncertain
tax positions would have a favorable impact on the effective tax rate. It is reasonably possible that the amount
of the unrecognized tax benefit with respect to certain of the Company’s unrecognized tax positions will
increase or decrease during the next 12 months as a result of audit settlements. Accordingly, the Company has
classified $5,258,000 of the reserve for uncertain tax positions and the related accrued interest as a current
liability in the accompanying consolidated balance sheet. The Company does not expect the resolution of these
issues to have a significant effect on the Company’s results of operations or financial position.
Interest and penalties associated with unrecognized tax benefits are recorded in nonoperating (income)
and expenses and selling, general and administrative expenses, respectively. The Company recorded expenses
of $2,312,000 related to penalties and interest in fiscal 2008. The Company had accrued penalties and interest
of $6,786,000 and $4,730,000 at March 1, 2008 and March 4, 2007, respectively.
NOTE 13 — COMMITMENTS AND CONTINGENCIES
Leases — At March 1, 2008, the Company had the following minimum lease commitments and future
subtenant receipts from continuing operations in the years indicated (in thousands):
Fiscal Year
Operating
Leases
Subtenant
Income
2009 ..................................................... $ 227,571 $ 640
2010 ..................................................... 206,824 539
2011 ..................................................... 182,433 494
2012 ..................................................... 157,862 493
2013 ..................................................... 120,836 356
Thereafter ................................................. 171,067 281
Total lease commitments .................................... $1,066,593 $2,803
Rental expense incurred was $253,962,000, $257,255,000 and $249,294,000, including contingent rentals
of $46,000, $93,000 and $260,000, based upon a percentage of sales, and net of sublease incomes totaling
$332,000, $304,000 and $311,000 in fiscal 2008, 2007 and 2006, respectively.
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Pier 1 Imports, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)