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Note K - Income Taxes
6 Months Ended
Dec. 03, 2013
Income Tax Disclosure [Abstract]  
Income Tax Disclosure [Text Block]

NOTE K – INCOME TAXES


Under Accounting Standards Codification 740 (“ASC 740”), companies are required to apply their estimated annual tax rate on a year-to-date basis in each interim period. Under ASC 740, companies should not apply the estimated annual tax rate to interim financial results if the estimated annual tax rate is not reliably predictable. In this situation, the interim tax rate should be based on the actual year-to-date results. Due to changes in our projections, which have fluctuated as we work through our brand repositioning, a reliable projection of our annual effective rate has been difficult to determine. As such, we recorded a tax benefit for the first two quarters of fiscal 2014 based on the actual year-to-date results, in accordance with ASC 740.


We recorded a tax benefit from continuing operations of $1.9 million and $7.1 million for the 13- and 26-week periods ended December 3, 2013, respectively, compared to $6.7 million and $8.6 million for the 13- and 26-week periods ended December 4, 2012, respectively, to reflect the current benefit of federal and certain state net operating loss carrybacks as well as the recognition of unrecognized tax benefits. The change in income taxes is attributable to increased pre-tax losses for the 13 and 26 weeks ending December 3, 2013 as compared to the same periods of the prior year, offset by an increase in the valuation allowance for deferred tax assets as discussed below.   


We regularly evaluate the need for a valuation allowance for deferred tax assets by assessing whether it is more likely than not that we will realize the deferred tax assets in the future.  A valuation allowance assessment is performed each reporting period, with any additions or adjustments reflected in earnings in the period of assessment.  In assessing the need for a valuation allowance, we have considered both positive and negative evidence related to the likelihood of realization of the deferred tax assets for each jurisdiction.


Through the third quarter of fiscal 2013, we had concluded that objective and subjective positive evidence outweighed negative evidence, and concluded it was more likely than not to realize all of our federal and most of our state deferred tax assets, except for loss carryforwards in certain states that have had cumulative losses due to our state tax planning strategies and/or relatively short carryforward periods and annual limits on how much loss carryforward can be used to offset future taxable income.   During the fourth quarter of fiscal 2013, we recorded a valuation allowance following the conclusion that the negative evidence outweighed the positive evidence. 


Our valuation allowance totaled $45.4 million and $24.6 million as of December 3, 2013 and June 4, 2013, respectively. Netted against our tax benefit from continuing operations for the 13- and 26-week periods ended December 3, 2013 were charges of $14.6 million and $21.9 million, respectively, representing the amount reserved for the increase in deferred tax assets during the periods which primarily related to general business credit carryforwards and state net operating loss carryforwards.


We had a liability for unrecognized tax benefits, exclusive of accrued interest and penalties, of $8.9 million and $13.0 million as of December 3, 2013 and June 4, 2013, respectively. As of December 3, 2013 and June 4, 2013, the total amount of unrecognized tax benefits that, if recognized, would impact our effective tax rate was $3.6 million and $3.5 million, respectively. The liability for unrecognized tax benefits as of December 3, 2013 includes $1.2 million related to tax positions for which it is reasonably possible that the total amounts could change within the next twelve months based on the outcome of examinations and negotiations with tax authorities.


Interest and penalties related to unrecognized tax benefits are recognized as components of income tax expense. As of December 3, 2013 and June 4, 2013, we had accrued $1.0 million and $0.9 million, respectively, for the payment of interest and penalties. During the first 26 weeks of fiscal 2014, accrued interest and penalties increased $0.1 million, all of which affected the effective tax rate for the same time period.


At December 3, 2013, we are no longer subject to U.S. federal income tax examinations by tax authorities for fiscal years prior to 2010, and with few exceptions, state and local examinations by tax authorities prior to fiscal year 2009.