Pier 1 2013 Annual Report Download - page 60

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The difference between income taxes at the statutory federal income tax rate of 35% in fiscal 2013, 2012
and 2011, and income tax reported in the consolidated statements of operations is as follows (in thousands):
2013 2012 2011
Tax provision at statutory federal
income tax rate $70,350 $ 57,437 $ 36,240
State income taxes, net of
federal provision 6,838 6,408 3,893
Decrease in valuation allowance (1,034) (60,751) (38,687)
Foreign income taxes 1,093 2,691 1,967
Foreign and other tax credits (1,785) (3,429) -
Other, net (3,906) (7,187) 6
Provision (benefit) for income taxes $71,556 $ (4,831) $ 3,419
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 2013 and 2012
are presented below, in thousands:
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
Gross increases - tax positions in prior period 1,171
Gross decreases - tax positions in prior period (1,054)
Settlements (1,965)
Expiration of statute of limitations (4,689)
Unrecognized Tax Benefits - March 2, 2013 $ 2,194
If the Company were to prevail on all unrecognized tax benefits recorded, the majority of this reserve for
uncertain tax positions would have a favorable impact on the effective tax rate. It is reasonably possible that
slightly less than half of the Company’s gross unrecognized tax benefits could decrease within the next twelve
months primarily due to audit settlements.
Interest associated with unrecognized tax benefits is recorded in nonoperating (income) and expenses.
Penalties associated with unrecognized tax benefits are recorded in selling, general and administrative expenses.
During the second quarter of fiscal 2013, the Company reversed a portion of its reserve for uncertain tax
positions, resulting in the reversal of $2,758,000 of accrued interest expense. Excluding this reversal of accrued
interest, the Company recorded expenses of $1,119,000 related to penalties and interest in fiscal 2013, compared
to $711,000 and $424,000 in fiscal 2012 and 2011, respectively. The Company had accrued penalties and interest
of $2,035,000 and $5,685,000 at March 2, 2013 and February 25, 2012, respectively.
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