Saks Fifth Avenue 2011 Annual Report Download - page 63

SAKS INCORPORATED & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
The Company evaluates the realizability of its deferred tax assets on a quarterly basis. In 2011 and 2010, this
evaluation resulted in a net reduction to the reserve against state deferred tax assets of $11,782 and $2,228,
respectively, impacting the Company’s results of operations. A similar analysis was performed in 2009, which
resulted in an additional reserve against state deferred tax assets of $3,045. The Company will continue to
assess the need for additional valuation allowances in the future. If future results are less than projected or tax
planning strategies are no longer viable, then additional valuation allowances may be required to reduce the
deferred tax assets which could have a material impact on the Company’s results of operations in the period in
which it is recorded.
The Company made income tax payments, net of income tax refunds received of $4,776 and $2,191 during 2011
and 2010, respectively. During 2009, the Company received income tax refunds of $4,727, net of income tax
payments.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:
2011 2010 2009
Unrecognized tax benefits at beginning of year ............... $ 14,254 $ 40,358 $ 46,031
Gross increases related to tax positions taken in prior
periods ........................................... 9,072 3,230 1,111
Gross decreases related to tax positions taken in prior
periods ........................................... (4,131) (165) —
Lapse of statute of limitations ........................... (4,052) (28,860) (6,656)
Settlements with taxing authorities ...................... (919) (309) (128)
Unrecognized tax benefits at end of year ................... $ 14,224 $ 14,254 $ 40,358
The Company analyzed its positions related to the reserve for tax exposures and determined that the amount
was adequate. The Company will continue to analyze its positions related to the reserve for tax exposures on an
ongoing basis. At January 28, 2012, $3,572 represents the amount of unrecognized tax benefits that, if
recognized, would impact the effective income tax rate in future periods. The Company continually evaluates its
tax filing positions and to the extent the Company prevails on audits or statutes of limitation expire, the
unrecognized tax benefits could be realized. The Company does not anticipate any material changes in
unrecognized tax benefits within twelve months of January 28, 2012.
The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. During
the years ended January 28, 2012, January 29, 2011, and January 30, 2010, the Company recognized a benefit of
$927, $1,391, and $63, respectively from interest and penalties, net of related tax effects. The Company has
accrued $2,400 and $3,614 for interest and penalties as of January 28, 2012 and January 29, 2011, respectively.
The Company files a consolidated U.S. federal income tax return as well as state tax returns in multiple state
jurisdictions. The Company has completed examinations by the Internal Revenue Service or the statute of
limitations has expired for taxable years through February 2, 2008. With respect to the state and local
jurisdictions, the Company has completed examinations in many jurisdictions through the same period and
beyond and currently has no examinations in progress.
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