Pep Boys 2012 Annual Report Download - page 97

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THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended February 2, 2013, January 28, 2012 and January 29, 2011
NOTE 8—INCOME TAXES (Continued)
2012 consists of $7.3 million of alternative minimum tax credits, $4.0 million of work opportunity
credits, $0.9 million of hire tax credits and $5.7 million of state and Puerto Rico tax credits. The
alternative minimum credits have an indefinite life and the other credits are scheduled to expire in
various years starting from 2012 of which $0.9 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 sheet. 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.
There was no significant change in the Company’s valuation allowance position in fiscal year 2012. In
fiscal year 2011, 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.
The Company and its subsidiaries’ largest jurisdictions where they are subject to income tax are
U.S. federal, Puerto Rico and various states jurisdictions, in respective order of significance. The
Company’s U.S. federal returns for tax years 2009 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 returns. The Company is currently under federal examination for fiscal year
2010 and 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:
February 2, January 28, January 29,
(dollar amounts in thousands) 2013 2012 2011
Unrecognized tax benefit balance at the
beginning of the year ................... $3,364 $ 4,131 $2,411
Gross increases for tax positions taken in prior
years ............................... — — 1,331
Gross decreases for tax positions taken in prior
years ............................... (338) — —
Gross increases for tax positions taken in current
year ............................... 201 235 389
Settlements taken in current year ............ — — —
Lapse of statute of limitations .............. (953) (1,002) —
Unrecognized tax benefit balance at the end of
the year ............................. $2,274 $ 3,364 $4,131
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 years 2012 and 2011 related
to potential interest and penalties associated with uncertain tax positions. At February 2, 2013,
January 28, 2012, and January 29, 2011, the Company has recorded $0.5 million, $0.3 million, and
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