Income Taxes

12 Months Ended

Jan. 28, 2012

Income Taxes

Income Taxes

Note 8. Income Taxes

        The following table summarizes our distribution between domestic and foreign earnings (loss) from continuing operations before income taxes and the provision (benefit) for income taxes related to continuing operations (in thousands):

	Fiscal 2011			Fiscal 2010			Fiscal 2009
Earnings (loss) from continuing operations before income taxes:
Domestic	$	39,880		$	16,733		$	(3,864	)
Foreign		3,644			4,042			2,305
Earnings (loss) from continuing operations before income taxes	$	43,524		$	20,775		$	(1,559	)
Current:
Federal	$	8,306		$	5,649		$	3,050
State		652			2,162			1,107
Foreign		285			1,698			1,106
		9,243			9,509			5,263
Deferred—Federal and State		5,385			(4,637	)		(8,030	)
Deferred—Foreign		(347	)		(332	)		(178	)
Income Taxes (benefit)	$	14,281		$	4,540		$	(2,945	)

        Reconciliations of the United States federal statutory income tax rates and our effective tax rates are summarized as follows:

	Fiscal 2011			Fiscal 2010			Fiscal 2009
Statutory rate		35.0	%		35.0	%		35.0	%
State income taxes—net of federal income tax benefit		2.3	%		0.5	%		26.8	%
Impact of foreign earnings (loss)(1)		(1.9	)%		(0.8	)%		145.1	%
Valuation allowance against foreign losses and other carryforwards(1)		(0.1	)%		(3.0	)%		(85.4	)%
Change in contingency reserves related to unrecognized tax benefits		(1.2	)%		(6.6	)%		4.5	%
Impact of permanent differences related to life insurance investments		(0.9	)%		(2.2	)%		9.1	%
Impact of federal tax credits		(1.1	)%		(2.1	)%		28.1	%
Permanent reduction of available carryforwards		—			2.0	%		—
Other adjustment(2)		(0.6	)%		(2.5	)%		25.6	%
Other, net		1.3	%		1.6	%		0.1	%
Effective rate for continuing operations		32.8	%		21.9	%		188.9	%

(1)

The percentage in fiscal 2009 reflects the benefit of foreign losses, including the reversal of deferred taxes recorded on undistributed earnings in prior years. A portion of this benefit is estimated to have a less than 50% probability of being realized and is therefore reduced by a valuation allowance.

(2)

The other adjustment in fiscal 2011, fiscal 2010 and fiscal 2009 reflects the change in the expected tax impact to be realized upon reversal of deferred tax assets and liabilities, caused by changes in enacted foreign and state tax rates and apportionment of total taxable income among jurisdictions.

        Deferred tax assets and liabilities included in our consolidated balance sheets are comprised of the following (in thousands):

	January 28, 2012			January 29, 2011
Deferred Tax Assets:
Inventories	$	11,180		$	7,555
Accrued compensation and benefits		8,143			10,630
Allowance for doubtful accounts		303			373
Depreciation and amortization		6,003			9,924
Non-current liabilities		732			743
Deferred rent and lease obligations		303			1,766
Operating loss carryforwards		1,565			1,385
Other, net		4,198			5,412
Deferred tax assets		32,427			37,788
Deferred Tax Liabilities:
Acquired intangible assets		(44,806	)		(45,175	)
Foreign(1)		(884	)		(597	)
Deferred tax liabilities		(45,690	)		(45,772	)
Valuation allowance		(1,886	)		(1,857	)
Net deferred tax liability	$	(15,149	)	$	(9,841	)

(1)

As of January 28, 2012 and January 29, 2011, we had undistributed earnings of foreign subsidiaries of approximately $9.6 million and $8.7 million, respectively, for which a deferred tax liability has been recorded, as the earnings are not considered permanently reinvested outside of the United States. If the earnings were repatriated to the United States, the earnings would be subject to United States taxation at that time. The amount of deferred tax liability recognized associated with the undistributed earnings represents the approximate excess of the United States tax liability over the creditable foreign taxes paid that would result from a full remittance of undistributed earnings.

        Accounting for income taxes requires that individual tax-paying entities offset all current deferred tax liabilities and assets within each particular tax jurisdiction and present them as a single amount in our consolidated balance sheets. A similar procedure is followed for all non-current deferred tax liabilities and assets. Amounts in different tax jurisdictions cannot be offset against each other. The amounts of deferred income taxes included in the following line items in our consolidated balance sheets are as follows (in thousands):

	January 28, 2012			January 29, 2011
Assets:
Deferred tax assets	$	19,733		$	19,005
Liabilities:
Deferred tax liabilities		(34,882	)		(28,846	)
Net deferred tax liability	$	(15,149	)	$	(9,841	)

        A reconciliation of unrecognized tax benefits at the beginning and end of the year is as follows (in thousands):

	Fiscal 2011			Fiscal 2010			Fiscal 2009
Balance at beginning of year	$	2,921		$	4,402		$	4,558
Additions for current year tax positions		13			15			32
Expiration of the statute of limitation for the assessment of taxes		(604	)		(1,402	)		(670	)
Additions for tax positions of prior year		133			153			691
Reductions for tax positions of prior year		(2	)		(24	)		(64	)
Settlements		—			(223	)		(145	)
Balance at end of year	$	2,461		$	2,921		$	4,402

        The unrecognized tax benefits, if recognized, would reduce our annual effective rate. The net impact on our statements of earnings for potential penalty and interest expense related to these unrecognized tax benefits was a benefit of $0.2 million in fiscal 2011, benefit of $0.5 million in fiscal 2010 and expense of less than $0.1 million in fiscal 2009. As of January 28, 2012 and January 29, 2011, we have recognized in our consolidated balance sheets, total liabilities for potential penalties and interest, in the aggregate, of $0.3 million and $0.5 million, respectively. We anticipate that the amount of unrecognized benefit with respect to our unrecognized tax positions as of January 28, 2012 will decrease within the next twelve months as we believe the substantial majority of the unrecognized benefit will be recognized in fiscal 2012 due to settlement of issues with taxing authorities or expiration of statutes of limitations.