Petsmart 2009 Annual Report Download - page 66

jurisdictions. These audits can involve complex issues that may require an extended period of time to resolve and
may cover multiple years. During 2009, we recorded a net benefit of approximately $1.0 million from the settlement
of uncertain tax positions and lapse of statute of limitations with various federal and state tax jurisdictions. During
2008 and 2007, we recorded a net benefit of approximately $1.2 million and $4.0 million, respectively, from the
settlement of uncertain tax positions with various state tax jurisdictions and the lapse of the statute of limitations for
certain tax positions. The net benefits are reflected in income tax expense in the Consolidated Statements of
Operations and Comprehensive Income. We cannot make an estimate of the range of possible changes that may
result from other audits.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
January 31,
2010
February 1,
2009
February 3,
2008
Year Ended
(52 weeks) (52 weeks) (53 weeks)
Unrecognized tax benefits, beginning balance ............ $8,127 $8,824 $12,334
Gross increases — tax positions related to the current year. . . 1,299 1,314 1,115
Gross increases — tax positions in prior periods .......... 716 290 —
Gross decreases — tax positions in prior periods .......... (153) (674) (4,200)
Gross settlements ................................. (394) (663) —
Lapse of statute of limitations ........................ (2,215) (558) (741)
Gross (decreases) increases — foreign currency translation. . . 272 (406) 316
Unrecognized tax benefits, ending balance .............. $7,652 $8,127 $ 8,824
Included in the balance of unrecognized tax benefits at January 31, 2010, February 1, 2009, and February 3,
2008 are $6.8 million and $7.3 million, and $7.8 million, respectively, of tax benefits that, if recognized, would
affect the effective tax rate.
We continue to recognize penalties and interest accrued related to unrecognized tax benefits as income tax
expense. During 2009, the impact of accrued interest and penalties related to unrecognized tax benefits on the
Consolidated Statement of Operations was immaterial. In total, as of January 31, 2010, we had recognized a liability
for penalties of $0.7 million and interest of $1.7 million. As of February 1, 2009, and February 3, 2008, we had
recognized a liability for penalties of $0.8 million and $1.3 million, respectively, and interest of $1.8 million and
$2.0 million, respectively.
Our unrecognized tax benefits largely include state exposures from filing positions taken on state tax returns
and characterization of income and timing of deductions on federal and state tax returns. We believe that it is
reasonably possible that approximately $0.2 million of our currently remaining unrecognized tax positions, each of
which are individually insignificant, may be recognized by the end of 2010 as a result of settlements or a lapse of the
statute of limitations.
As of January 31, 2010, we had, for income tax reporting purposes, federal net operating loss carryforwards of
$53.4 million which expire in varying amounts between 2019 and 2020. The federal net operating loss carryfor-
wards are subject to certain limitations on their utilization pursuant to the Internal Revenue Code. We also had a
Canadian capital loss carryforward of $11.6 million which can be carried forward indefinitely.
F-18
PetSmart, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)