Pep Boys 2013 Annual Report Download - page 130

THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended February 1, 2014, February 2, 2013 and January 28, 2012
NOTE 8—INCOME TAXES (Continued)
in various years starting from 2014, of which $6.7 million have 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.
In fiscal year 2013, the Company recorded a benefit for gross state hiring credits of approximately
$6.3 million that were impacted by a state tax law change enacted during the fiscal year that restricted
the carryforward period for these credits. The Company recorded $6.7 million of gross valuation
allowances on these credits and other state credit carryforwards. There was no significant change in the
Company’s valuation allowance position in fiscal year 2012.
The Company and its subsidiaries’ largest jurisdictions subject to income tax are U.S. federal,
Puerto Rico (foreign) and various states jurisdictions, in respective order of significance. The
Company’s U.S. federal returns for tax years 2011 and forward are subject to examination. Foreign,
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.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
February 1, February 2, January 28,
(dollar amounts in thousands) 2014 2013 2012
Unrecognized tax benefit balance at the
beginning of the year ................... $2,274 $3,364 $ 4,131
Gross increases for tax positions taken in prior
years ............................... — — —
Gross decreases for tax positions taken in prior
years ............................... — (338) —
Gross increases for tax positions taken in current
year ................................ 13 201 235
Settlements taken in current year ............ — — —
Lapse of statute of limitations .............. (346) (953) (1,002)
Unrecognized tax benefit balance at the end of
the year ............................. $1,941 $2,274 $ 3,364
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 2013 and 2012 related
to potential interest and penalties associated with uncertain tax positions. As of February 1, 2014,
February 2, 2013 and January 28, 2012, the Company has recorded $0.5 million, $0.5 million, and
$0.3 million, respectively, for the payment of interest and penalties which are excluded from the
unrecognized tax benefit noted above.
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