AutoZone 2010 Annual Report Download - page 140

At August 28, 2010, and August 29, 2009, the Company had deferred tax assets of $8.2 million and
$8.4 million from federal tax operating losses (“NOLs”) of $23.4 million and $24.0 million, and deferred tax
assets of $1.6 million and $1.3 million from state tax NOLs of $35.5 million and $24.6 million, respectively.
At August 28, 2010, the Company had no deferred tax assets from Non-U.S. NOLs. At August 29, 2009, the
Company had deferred tax assets of $1.3 million from Non-U.S. NOLs of $3.3 million. The federal and state
NOLs expire between fiscal 2011 and fiscal 2025. At August 28, 2010 and August 29, 2009, the Company
had a valuation allowance of $6.8 million and $6.8 million, respectively, for certain federal and state NOLs
resulting primarily from annual statutory usage limitations. At August 28, 2010 and August 29, 2009, the
Company had deferred tax assets of $16.0 million and $13.5 million, respectively, for federal, state, and
Non-U.S. income tax credit carryforwards. Certain tax credit carryforwards have no expiration date and others
will expire in fiscal 2011 through fiscal 2030. At August 28, 2010 and August 29, 2009, the Company had a
valuation allowance of $0.3 million and $0.3 million for credits subject to such expiration periods,
respectively.
ASC Topic 740 (formerly FASB Statement No. 109, Accounting for Income Taxes, and FASB Interpretation
No. 48, Accounting for Uncertain Tax Positions — an Interpretation of FASB Statement No. 109) prescribes a
recognition threshold that a tax position is required to meet before being recognized in the financial statements
and provides guidance on derecognition, measurement, classification, interest and penalties, accounting in
interim periods, disclosure and transition issues. The adoption of portions of ASC Topic 740 resulted in a
decrease to the beginning balance of retained earnings of $26.9 million during fiscal 2008. Including this
cumulative effect amount, the liability recorded for total unrecognized tax benefits upon adoption at August 26,
2007, was $49.2 million.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
(in thousands)
August 28,
2010
August 29,
2009
Beginning balance ......................................................................................................... $ 44,192 $40,759
Additions based on tax positions related to the current year .................................. 16,802 5,511
Additions for tax positions of prior years ................................................................ 2,125 9,567
Reductions for tax positions of prior years.............................................................. (6,390) (5,679)
Reductions due to settlements .................................................................................. (16,354) (2,519)
Reductions due to statue of limitations .................................................................... (1,821) (3,447)
Ending balance .............................................................................................................. $ 38,554 $44,192
Included in the August 28, 2010, balance is $16.7 million of unrecognized tax benefits that, if recognized,
would reduce the Company’s effective tax rate.
The Company accrues interest on unrecognized tax benefits as a component of income tax expense. Penalties,
if incurred, would be recognized as a component of income tax expense. The Company had $7.9 million and
$12.4 million accrued for the payment of interest and penalties associated with unrecognized tax benefits at
August 28, 2010 and August 29, 2009, respectively.
The major jurisdictions where the Company files income tax returns are the U.S. and Mexico. With few
exceptions, tax returns filed for tax years 2006 through 2009 remain open and subject to examination by the
relevant tax authorities. The Company is typically engaged in various tax examinations at any given time, both
by U.S. federal and state taxing jurisdictions and Mexican tax authorities. As of August 28, 2010, the
Company estimates that the amount of unrecognized tax benefits could be reduced by approximately
$23.1 million over the next twelve months as a result of tax audit closings, settlements, and the expiration of
statutes to examine such returns in various jurisdictions. While the Company believes that it has adequately
accrued for possible audit adjustments, the final resolution of these examinations cannot be determined at this
time and could result in final settlements that differ from current estimates.
Note E — Fair Value Measurements
Effective August 31, 2008, the Company adopted ASC Topic 820 (formerly FASB Statement No. 157, Fair Value
Measurements) which defines fair value, establishes a framework for measuring fair value in generally accepted
accounting principles (“GAAP”) and expands disclosure requirements about fair value measurements. This
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10-K