Pier 1 2011 Annual Report Download - page 65

Download and view the complete annual report

Please find page 65 of the 2011 Pier 1 annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 144

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The difference between income taxes at the statutory federal income tax rate of 35% in fiscal 2011, 2010
and, 2009, and income tax reported in the consolidated statements of operations is as follows (in thousands):
2011 2010 2009
Tax provision (benefit) at statutory federal income
tax rate $ 36,240 $ 11,218 $ (45,020)
State income taxes, net of federal provision (benefit) 3,893 2,475 (12,350)
Increase (decrease) in valuation allowance (38,687) (81,599) 56,637
Foreign income taxes, net of foreign tax credits 1,967 267 92
Permanent difference on consolidation of foreign
subsidiary for tax filings (1) - 6,381 -
Non-deductible make-whole interest payment (2) - 5,375 -
Other, net 6 1,087 1,265
Provision (benefit) for income taxes $ 3,419 $ (54,796) $ 624
(1) The Company chose to change the tax filing status of a foreign subsidiary, and included this subsidiary in its consolidated tax
return in fiscal 2010. For federal tax purposes, this effectively resulted in the repatriation of the foreign subsidiary’s
accumulated earnings which had not been previously taxed in the United States. This created a permanent difference between
reported net income and taxable income.
(2) During fiscal 2010, the Company paid make-whole interest in connection with the voluntary conversion of its 9% Notes. This
interest is not deductible for federal tax purposes and resulted in a permanent difference between reported net income and
taxable income.
The accounting guidance on uncertainty in income taxes 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. 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 2011 and 2010
are presented below, in thousands:
Unrecognized Tax Benefits - February 28, 2009 $11,177
Gross increases - tax positions in prior period 661
Gross decreases - tax positions in prior period -
Settlements (806)
Expiration of statute of limitations -
Unrecognized Tax Benefits - February 27, 2010 $11,032
Gross increases - tax positions in prior period 270
Gross decreases - tax positions in prior period -
Settlements (2,491)
Expiration of statute of limitations -
Unrecognized Tax Benefits - February 26, 2011 $ 8,811
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. The Company does not believe 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.
59