Pier 1 2012 Annual Report Download - page 62

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The difference between income taxes at the statutory federal income tax rate of 35% in fiscal 2012, 2011
and 2010, and income tax reported in the consolidated statements of operations is as follows (in thousands):
2012 2011 2010
Tax provision at statutory federal income tax rate $ 57,437 $ 36,240 $ 11,218
State income taxes, net of federal provision 6,408 3,893 2,475
Decrease in valuation allowance (60,751) (38,687) (81,599)
Foreign income taxes, net of foreign tax credits 2,691 1,967 267
Permanent difference on consolidation of foreign subsidiary
for tax filings (1) - - 6,381
Non-deductible make-whole interest payment (2) - - 5,375
Foreign and other tax credits (3,429) - -
Other, net (7,187) 6 1,087
Provision (benefit) for income taxes $ (4,831) $ 3,419 $(54,796)
(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 income 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 convertible debt.
This interest is not deductible for federal income 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 2012 and 2011
are presented below, in thousands:
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
Gross increases - tax positions in prior period -
Gross decreases - tax positions in prior period (80)
Settlements -
Expiration of statute of limitations -
Unrecognized Tax Benefits - February 25, 2012 $ 8,731
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 majority of
the Company’s gross unrecognized tax benefits could decrease within the next twelve months due to expiration
of the statute of limitations or audit settlements.
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