Pep Boys 2011 Annual Report Download - page 103

THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended January 29, 2011, January 30, 2010 and January 31, 2009
NOTE 8—INCOME TAXES (Continued)
$7.3 million of alternative minimum tax credits, $3.4 million of work opportunity credits and
$6.4 million of state and Puerto Rico tax credits of which $3.3 million have full valuation allowances
recorded against them.
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 it is more likely than not that the asset will
not be recoverable, a valuation allowance must be established. To the extent the Company establishes a
valuation allowance or changes the allowance in a future period, income tax expense will be impacted.
Based on the Company’s improved performance and tax restructuring, the Company released
$5.3 million of gross valuation allowances ($3.6 million net of federal benefit) on certain state net
operating loss carryforwards and state credits during fiscal 2011.
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. 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 28, January 29, January 30,
(dollar amounts in thousands) 2012 2011 2010
Unrecognized tax benefit balance at the
beginning of the year ................... $4,131 $2,411 $2,458
Gross increases for tax positions taken in prior
years ............................... — 1,331 646
Gross decreases for tax positions taken in prior
years ............................... — — (526)
Gross increases for tax positions taken in current
year ............................... 235 389 296
Settlements taken in current year ............ — — (271)
Lapse of statute of limitations .............. (1,002) — (192)
Unrecognized tax benefit balance at the end of
the year ............................ $3,364 $4,131 $2,411
The Company recognizes potential interest and penalties for unrecognized tax benefits in income
tax expense and, accordingly, the Company recognized $0.1 million in fiscal 2011 and no material
income tax expense in fiscal 2010 related to potential interest and penalties associated with uncertain
tax positions. At January 28, 2012, January 29, 2011, and January 30, 2010, the Company has recorded
$0.3 million, $0.2 million, and $0.2 million, respectively, for the payment of interest and penalties which
are excluded from the unrecognized tax benefit noted above.
Unrecognized tax benefits include $1.3 million, $1.4 million, and $1.3 million, at January 28, 2012,
January 29, 2011 and January 30, 2010, respectively, of tax benefits that, if recognized, would affect the
59