Pier 1 2010 Annual Report Download - page 75

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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
$4,235,000 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
$1,245,000 and $1,059,000 related to penalties and interest in fiscal 2010 and fiscal 2009, respectively. The
Company had accrued penalties and interest of $7,148,000 and $5,854,000 at February 27, 2010 and February 28,
2009, respectively.
NOTE 11 – COMMITMENTS AND CONTINGENCIES
Leases – At February 27, 2010, the Company had the following minimum lease commitments and future
subtenant receipts in the years indicated (in thousands):
Fiscal Year
Operating
Leases
Subtenant
Income
2011 $ 208,313 $ 730
2012 191,093 675
2013 157,351 454
2014 116,084 339
2015 62,769 138
Thereafter 56,086 -
Total lease commitments $ 791,696 $ 2,336
Rental expense incurred was $232,098,000, $244,776,000 and $253,962,000, including contingent rentals
of $90,000, $43,000 and $46,000, based upon a percentage of sales, and net of sublease incomes totaling
$292,000, $281,000 and $332,000 in fiscal 2010, 2009 and 2008, respectively.
During fiscal 2009, the Company sold its corporate headquarters building and accompanying land to
Chesapeake Plaza, L.L.C., an affiliate of Chesapeake Energy Corporation. The Company also entered into a lease
agreement to rent office space in the building. The lease has a primary term of seven years which began on
June 9, 2008, with one three-year renewal option and provisions for terminating the lease at the end of the fifth
lease year. The related gain on the sale of the property was approximately $23,300,000. As of February 27, 2010,
the Company’s remaining deferred gain was $15,243,000, the majority of which is included in other noncurrent
liabilities, and will be recognized over the expected lease term.
Legal matters – During fiscal 2010,the Company received a $10,000,000 payment as a result of a
foreign litigation settlement and recorded a gain in other income as a result of the settlement. There were no
significant legal matters in fiscal 2009. During fiscal 2008, the Company paid $4,376,000, for the settlement of a
class action lawsuit regarding compensation matters, which was included in selling, general and administrative
expenses in fiscal 2007.
There are various claims, lawsuits, investigations and pending actions against the Company and its
subsidiaries incident to the operations of its business. The Company considers them to be ordinary and routine in
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