Pier 1 2016 Annual Report Download - page 60

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred tax assets related to state net operating losses at February 27, 2016 and February 28, 2015, were $426,000 and
$533,000, respectively. State loss carryforwards vary as to the carryforward period and will expire from fiscal 2017 through fiscal
2030. The Company believes that it is not more likely than not that the benefit from certain state tax credits will be realized.
Accordingly, the Company has provided a valuation allowance of $654,000 and $422,000 with respect to the deferred tax
assets relating to these state tax credits as of February 27, 2016 and February 28, 2015, respectively.
The Company is subject to taxation in the United States and various state, provincial, local and foreign (primarily Canadian)
jurisdictions. With few exceptions, as of fiscal 2016, the Company is no longer subject to U.S. federal or state examinations by
tax authorities for years before fiscal 2013. Certain tax years prior to fiscal 2013 are subject to examination by certain state and
foreign jurisdictions.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
2016 2015 2014
Unrecognized tax benefits — beginning balance $ 765 $ 6,673 $ 2,194
Gross increases — tax positions in current period 231 — —
Gross increases — tax positions in prior period 1,862 282 5,664
Gross decreases — tax positions in prior period (60) (1,458) —
Settlements (81) (4,732) (1,185)
Expiration of statute of limitations (166) — —
Unrecognized tax benefits — ending balance $2,551 $ 765 $ 6,673
As of February 27, 2016, the Company had total unrecognized tax benefits of $2,551,000, the majority of which would, if
recognized, affect the Company’s effective tax rate. As of February 28, 2015, the Company had unrecognized tax benefits of
$765,000, the majority of which would, if recognized, affect the Company’s effective tax rate. It is reasonably possible a
significant portion of the Company’s gross unrecognized tax benefits could decrease within the next twelve months primarily due
to audit settlements.
Interest associated with unrecognized tax benefits is recorded in nonoperating (income) and expenses. Penalties associated with
unrecognized tax benefits are recorded in SG&A expenses. The Company recorded expenses for tax interest and penalties, net
of refunds, of $286,000, $3,000 and $536,000 in fiscal 2016, 2015 and 2014, respectively. The Company had accrued
penalties and interest of $508,000 and $389,000 at February 27, 2016 and February 28, 2015, respectively.
NOTE 8 — COMMITMENTS AND CONTINGENCIES
Leases — At February 27, 2016, the Company had the following minimum lease commitments and future subtenant receipts in
the years indicated (in thousands):
Fiscal Year Operating Leases Subtenant Income
2017 $ 237,436 $ 835
2018 211,580 348
2019 178,541 18
2020 147,617 —
2021 119,248 —
Thereafter 359,207 —
Total lease commitments $1,253,629 $1,201
Rental expense, which includes distribution and fulfilment center space and corporate headquarters, was $269,540,000,
$263,276,000 and $244,481,000 in fiscal 2016, 2015 and 2014, respectively. These amounts include contingent rentals of
$400,000, $508,000 and $546,000, based upon a percentage of sales, and net of sublease incomes totaling $322,000,
$285,000 and $285,000 in fiscal 2016, 2015 and 2014, respectively.
Legal matters — On August 28, 2015, a putative class action complaint was filed in the United States District Court for the
Northern District of Texas — Dallas Division, captioned Kathleen Kenney, Plaintiff, v. Pier 1 Imports, Inc., Alexander W. Smith and
Charles H. Turner, Defendants (the “Kenney Case”), alleging violations under the Securities Exchange Act of 1934, as amended.
54 PIER 1 IMPORTS, INC. 2016 Form 10-K