Pep Boys 2014 Annual Report Download - page 60

THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended January 31, 2015, February 1, 2014 and February 2, 2013
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 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 2014, the Company recorded a $2.1 million gross valuation allowance primarily on state
net operating loss carryforwards. 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.
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:
January 31, February 1, February 2,
(dollar amounts in thousands) 2015 2014 2013
Unrecognized tax benefit balance at the
beginning of the year ................... $1,941 $2,274 $3,364
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 ................................ 2 13 201
Settlements taken in current year ............ (181) ——
Lapse of statute of limitations .............. (276) (346) (953)
Unrecognized tax benefit balance at the end of
the year ............................. $1,486 $1,941 $2,274
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 2014 and 2013 related
to potential interest and penalties associated with uncertain tax positions. As of January 31, 2015,
February 1, 2014 and February 2, 2013, the Company has recorded $0.2 million, $0.5 million, and
$0.5 million, respectively, for the payment of interest and penalties which are excluded from the
unrecognized tax benefit noted above.
Unrecognized tax benefits include $0.4 million, $0.7 million, and $0.9 million as of January 31,
2015, February 1, 2014 and February 2, 2013, respectively, that if recognized would affect the
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