Pier 1 2009 Annual Report Download - page 82

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 10—INCOME TAXES (Continued)
uncertainty in tax positions. FIN 48 prescribes the minimum recognition threshold a tax position is
required to meet before being recognized in the financial statements. It also provides guidance on
derecognition, measurement, classification, interest and penalties, accounting in interim periods,
disclosure and transition. The Company adopted the provisions of FIN 48 effective as of the beginning
of fiscal 2008. As a result of the cumulative effect of the adoption, the Company recorded a $5,073,000
decrease in retained earnings in fiscal 2008. Upon adoption on March 4, 2007, total reserves for
uncertain tax positions were $13,908,000.
On a quarterly and annual basis, the Company accrues for the effects of open uncertain tax
positions. A summary of amounts recorded for unrecognized tax benefits at the beginning and end of
fiscal 2009 and 2008 are presented below, in thousands:
Unrecognized Tax Benefits—March 4, 2007 ....................... $13,908
Gross increases—tax positions in prior period ...................... 1,880
Gross decreases—tax positions in prior period ..................... (1,400)
Settlements ............................................... (449)
Unrecognized Tax Benefits—March 1, 2008 ....................... $13,939
Gross increases—tax positions in prior period ...................... 3
Gross decreases—tax positions in prior period ..................... (1,179)
Settlements ............................................... (1,418)
Expiration of statute of limitations .............................. (168)
Unrecognized Tax Benefits—February 28, 2009 ..................... $11,177
If the Company were to prevail on all unrecognized tax benefits recorded, this entire reserve for
uncertain tax positions would have a favorable impact on the effective tax rate. It is reasonably possible
that the amount of the unrecognized tax benefit with respect to certain of the Company’s unrecognized
tax positions will increase or decrease during the next 12 months as a result of audit settlements.
Accordingly, the Company has classified $4,680,000 of the reserve for uncertain tax positions and the
related accrued interest as a current liability in the accompanying consolidated balance sheet. The
Company does not expect the resolution of these issues to have a significant effect on the Company’s
results of operations or financial position.
Interest and penalties associated with unrecognized tax benefits are recorded in nonoperating
(income) and expenses and selling, general and administrative expenses, respectively. The Company
recorded expenses of $1,059,000 and $2,312,000 related to penalties and interest in fiscal 2009 and
fiscal 2008, respectively. The Company had accrued penalties and interest of $5,854,000 and $6,786,000
at February 28, 2009 and March 1, 2008, respectively.
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