Pier 1 2014 Annual Report Download - page 55

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred tax assets and liabilities at March 1, 2014 and March 2, 2013 were comprised of the following (in thousands):
2014 2013
Deferred tax assets:
Deferred compensation $ 21,490 $ 22,845
Net operating loss carryforward 2,465 3,544
Accrued average rent 10,140 9,088
Properties, net — 4,398
Self insurance reserves 10,717 10,623
Cumulative foreign currency translation 2,971 2,115
Deferred revenue and revenue reserves 3,825 6,506
Foreign and other tax credits 5,667 3,104
Other 3,170 1,569
Total deferred tax assets 60,445 63,792
Deferred tax liabilities:
Properties, net (14,411) —
Inventory (20,497) (20,982)
Deferred gain on debt repurchase (18,370) (19,273)
Other (451) (235)
Total deferred tax liabilities (53,729) (40,490)
Valuation allowance (646) (1,944)
Net deferred tax assets (1) $ 6,070 $ 21,358
(1) The current portion of the Company’s deferred tax assets of $4,154 and $6,880 for fiscal 2014 and 2013, respectively, was included in the balance sheet with prepaid expenses and other
current assets. The noncurrent deferred tax assets of $6,753 for fiscal 2014, related to the state deferred tax assets, and $14,478 for fiscal 2013 was included in other noncurrent assets. The
noncurrent deferred tax liabilities of $4,837 for fiscal 2014, related to federal deferred tax liabilities, were included in other noncurrent liabilities.
Deferred tax assets related to state net operating losses at March 1, 2014 and March 2, 2013 were $2,465,000 and
$3,544,000, respectively. State loss carryforwards vary as to the carryforward period and will expire from fiscal 2015 through
fiscal 2030. The Company believes that it is not more likely than not that the benefit from certain state tax credits will be realized.
Accordingly, the Company has provided a valuation allowance of $646,000 with respect to the deferred tax assets relating to
these state tax credits.
The Company is subject to taxation in the United States and various state, provincial and local and foreign (primarily Canadian)
jurisdictions. With few exceptions, as of fiscal 2014, the Company is no longer subject to U.S. federal or state examinations by
tax authorities for years before fiscal 2011. Certain tax years prior to fiscal 2011 are subject to examination by certain foreign
jurisdictions. Fiscal 2011 through 2012 are currently under examination by the Internal Revenue Service.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
2014 2013 2012
Unrecognized Tax Benefits — Beginning Balance $ 2,194 $ 8,731 $ 8,811
Gross increases — tax positions in prior period 5,664 1,171 —
Gross decreases — tax positions in prior period — (1,054) (80)
Settlements (1,185) (1,965) —
Expiration of statute of limitations — (4,689) —
Unrecognized Tax Benefits — Ending Balance $ 6,673 $ 2,194 $ 8,731
If the Company were to prevail on all unrecognized tax benefits recorded, the majority of this reserve for uncertain tax benefits
would not have an impact on the effective tax rate as of March 1, 2014. Had the Company prevailed on all unrecognized tax
benefits recorded as of March 2, 2013 and February 25, 2012, the majority of the reserve for uncertain tax benefits as of such
dates would have had an impact on the effective tax rate. It is reasonably possible that most 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,
PIER 1 IMPORTS, INC. 2014 Form 10-K 51