INCOME TAXES

Total income tax expense for 2011, 2010 and 2009 was $13.1 million, $3.4 million and $5.8 million, respectively. The components of income tax expense were:



in thousands	2011		2010			2009

Federal
Current	$	283	$	236		$	(556	)
Deferred	7,295		(217		)	4,398
Federal income tax	7,578		19			3,842
State
Current	207		472			157
Deferred	410		158			839
State income tax	617		630			996
Foreign
Current	1,650		1,957			—
Deferred	3,233		807			958
Foreign income tax	4,883		2,764			958

Total income tax expense	$	13,078	$	3,413		$	5,796

A reconciliation of expected income tax (benefit) expense at the federal statutory rate of 34% to the Company’s applicable income tax expense follows:



in thousands	2011			2010			2009

Tax (benefit) expense at statutory rate (34%)	$	(14,888	)	$	5,207		$	6,662

State income tax, at statutory rate, net of federal income tax (benefit) expense	(1,866		)	428			657

Tax effect of:
Expenses not deductible	432			97			229
Tax credits and exclusions	472			(2,381		)	(2,814		)
Valuation allowance	29,603			823			109
Foreign taxes	(159		)	(248		)	74
Tax settlements	(72		)	(325		)	879
Reduction in uncertain tax position	(2,153		)	(507		)	—
Foreign repatriation	1,519			—			—
Other	190			319			—

Applicable income tax expense	$	13,078		$	3,413		$	5,796

As of February 4, 2007, the Company follows guidance provided by FASB ASC Topic 740, “Income Taxes” (“ASC Topic 740”) which clarifies the accounting for uncertainty in income taxes recognized in the financial statements. ASC Topic 740 provides guidance on the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, derecognition, classification, interest and penalties, accounting in interim periods, disclosures and transition. The Company had a balance of liability for uncertain tax positions of $0 and $2.2 million at February 4, 2012, and February 5, 2011, respectively.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows (in thousands):



	2011			2010

Balance at beginning of year	$	2,153		$	2,660
Additions based on tax positions related to the current year	—			—
Reductions for tax positions of prior years	(2,153		)	(507		)
Reductions related to settlements with taxing authorities	—			—

Balance at end of year	$	—		$	2,153

The decrease in unrecognized tax benefits resulted from the recognition of certain tax benefits due to statute closure. Recognition of these uncertain tax benefits favorably affected the tax rate. The Company recognizes interest expense and penalties related to the above unrecognized tax benefits within income tax expense. During the fiscal years ended February 4, 2012 and February 5, 2011, the Company recognized a credit of $46,000 and expense of $10,000, respectively, in interest and penalties. As of February 4, 2012 and February 5, 2011, the Company had approximately $0 and $46,000, respectively, accrued for the payment of interest and penalties.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, many states and Mexican and Canadian jurisdictions. The Company is generally no longer subject to U.S. federal income tax examination for the years prior to 2008. There is currently one ongoing examination by state authorities and no ongoing examinations by foreign taxing authorities.

On an ongoing basis, the Company is subject to examination by federal, state and foreign taxing authorities that may give rise to differing interpretation of the complex laws, regulations and methods. During fiscal 2011, the Company completed an IRS examination for 2008 with no additional tax due. At February 4, 2012, the Company believes that the aggregate amount of any additional tax liabilities that may arise from other examinations by taxing authorities, if any, will not have a material adverse effect on the financial condition, results of operations or cash flow of the Company.

Deferred income tax assets and liabilities reflect the tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for the same items for income tax reporting purposes.

The components of the Company’s net deferred tax (liability) asset as of February 4, 2012, and February 5, 2011, were:



in thousands	2011			2010

Deferred tax assets
Federal, state and foreign operating and capital loss carryforwards	$	11,568		$	2,181
Pension and supplemental retirement plan benefits	8,528			5,685
Reserves, principally due to accrual for financial reporting purposes	2,769			2,831
Federal, state and foreign tax credit carryforwards	9,287			8,708
Property, equipment and other long-lived assets	5,613			—
Other	—			86

Gross deferred tax assets	37,765			19,491

Deferred tax liabilities
Property, equipment and other long-lived assets	—			(3,258		)
Other	(1,180		)	—

Gross deferred tax liabilities	(1,180		)	(3,258		)

Valuation allowance	(36,616		)	(3,091		)

Net deferred tax (liability) asset	$	(31	)	$	13,142

As of February 4, 2012, the Company had deferred tax assets related to net operating loss carryforwards for federal, state and foreign tax purposes of approximately $8.2 million, $1.7 million and $1.7 million, respectively, which begin to expire in 2031, 2013 and 2031, respectively. The Company also has alternative minimum tax credit carryforwards of approximately $852,000, General Business Tax Credit carryforwards totaling $6.0 million, which expire in tax years 2023 through 2031, and foreign tax credits totaling $2.3 million, which expire in tax years 2016 through 2021.

The Company regularly assesses the likelihood that deferred tax assets will be recovered through future taxable income. To the extent the Company believes that it is more likely than not that a deferred tax asset will not be realized, a valuation allowance is established. Realization of deferred tax assets is dependent on generating sufficient taxable income prior to the expiration of the tax attribute. At February 4, 2012, the Company's cumulative losses and uncertainty regarding sufficient future taxable income necessary to realize deferred tax assets have resulted in the recognition of a valuation allowance. In the fourth quarter of fiscal 2011, the Company has recorded a valuation allowance against deferred tax assets, except for future taxable income that will result from the reversal of existing temporary differences for which deferred tax liabilities are recognized.

During 2011, we determined that a portion of the undistributed earnings of one of our foreign wholly-owned subsidiaries would be remitted to the U.S. in the foreseeable future. These earnings were previously considered permanently reinvested in the business and the unrecognized deferred tax liability related to these earnings was not recognized. The deferred tax effect of this newly planned remittance was recorded as a discrete net income tax expense of $1.1 million in the year ended February 4, 2012. At February 4, 2012, approximately $21.6 million of foreign subsidiary net earnings was considered permanently invested in those businesses. U.S. income taxes have not been provided for such earnings.