Pier 1 2010 Annual Report Download - page 73

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
fiscal 2010, primarily as a result of the recently enacted Worker, Homeownership and Business Assistance Act of
2009. This new law allows businesses with net operating losses incurred in either 2008 or 2009 to elect to carry
back such losses up to five years. This benefit resulted from the reversal of $55,856,000 of the Company’s
valuation allowance on its deferred tax asset for its net operating loss carryforwards that were carried back under
the new law. The Internal Revenue Service (“IRS”) also completed its examination of fiscal years 2003 through
2007 during the first quarter of fiscal 2010. As a result of the completion of these audits, the Company received a
refund of $1,443,000, including interest, during fiscal 2010. There were no adjustments from this examination
which resulted in significant permanent differences that had not already been reserved.
The Company has federal net operating loss carryforwards of approximately $92,000,000. These loss
carryforwards can be utilized to offset future income but will begin to expire in fiscal year 2027 if not utilized
before then.
Deferred tax assets and liabilities at February 27, 2010 and February 28, 2009 were comprised of the
following (in thousands):
2010 2009
Deferred tax assets:
Deferred compensation $ 18,943 $ 19,157
Net operating loss carryforward 44,218 109,779
Accrued average rent 12,336 13,180
Properties, net 33,582 33,741
Self insurance reserves 9,619 10,999
Deferred gain on sale of credit card operations 5,841 6,793
Cumulative foreign currency translation 2,034 1,299
Deferred revenue and revenue reserves 6,973 6,380
Other 5,210 8,453
Total deferred tax assets 138,756 209,781
Deferred tax liabilities:
Inventory (18,403) (27,733)
Deferred gain on debt repurchase (19,636) -
Other (361) (1,049)
Total deferred tax liabilities (38,400) (28,782)
Valuation allowance (100,356) (180,999)
Net deferred tax assets $ - $ -
During fiscal 2007, the Company recorded a valuation allowance against all deferred tax assets. In
addition, net deferred tax assets arising from losses during fiscal 2009 and 2008 in excess of the amount expected
to be carried back to offset taxable income in a prior year were fully reserved through a valuation allowance
during the respective years. As these deferred tax assets were established and fully reserved during fiscal 2009
and 2008, there was no net impact to the provision of income taxes. Taxes arising from the earnings in fiscal
2010 were offset by utilization of a portion of the Company’s federal net operating loss carryforwards, which
combined with the $55,856,000 refund from the new tax law, resulted in a decrease of the valuation allowance of
$81.6 million.
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