Pep Boys 2009 Annual Report Download - page 118

THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended January 30, 2010, January 31, 2009 and February 2, 2008
(dollar amounts in thousands, except share and per share data)
NOTE 8—INCOME TAXES (Continued)
The temporary differences between the book and tax treatment of income and expenses result in
deferred tax assets and liabilities, which are included within the consolidated balance sheets. The
Company must assess the likelihood that any recorded deferred tax assets will be recovered against
future taxable income. To the extent the Company believes that recovery is not more likely than not, a
valuation allowance must be established. Cumulative losses in recent years constitute ‘‘negative
evidence’’ that a recovery is not more likely than not, which must be rebutted by ‘‘positive evidence’’ to
avoid establishing a valuation allowance. To establish this positive evidence, the Company considers
various tax planning strategies for generating income sufficient to utilize the deferred tax assets,
including the potential sale of real estate and the conversion of the Company’s accounting policy for its
inventory from LIFO to FIFO. After considering all this evidence, the Company had valuation
allowances for these matters of $108,416 and $107,212 as of January 30, 2010 and January 31, 2009,
respectively.
The Company and its subsidiaries file income tax returns in the U.S. federal, various states and
Puerto Rico jurisdictions. The Company’s U.S. federal returns for tax years 2004 and forward are
subject to examination. State and local income tax returns are generally subject to examination for a
period of three to five years after filing of the respective return. In Puerto Rico, the 2004 through 2008
tax years are subject to examination by the Puerto Rico tax authorities. The Company has various state
income tax returns in the process of examination.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
January 30, January 31, February 2,
2010 2009 2008
Unrecognized tax benefit balance at the
beginning of the year ................... $2,458 $3,847 $ 6,392
Gross increases for tax positions taken in prior
years ............................. 646 147 1,550
Gross decreases for tax positions taken in prior
years ............................. (526) (831) (371)
Gross increases for tax positions taken in
current year ........................ 296 313 503
Settlements taken in current year .......... (271) (311) —
Lapse of statute of limitations ............. (192) (707) (4,227)
Unrecognized tax benefit balance at the end of
the year ............................. $2,411 $2,458 $ 3,847
The Company recognizes potential interest and penalties for unrecognized tax benefits in income
tax expense and, accordingly, during fiscal 2009, the Company recognized approximately $449 benefit of
potential interest and penalties associated with uncertain tax positions. At January 30, 2010, January 31,
2009, and February 2, 2008, the Company has recorded approximately $200, $971, and $1,172
respectively, for the payment of interest and penalties which are excluded from the $2,411 unrecognized
tax benefit noted above.
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