INCOME TAXES

12 Months Ended

Jan. 28, 2012

INCOME TAXES

INCOME TAXES

NOTE 8—INCOME TAXES

        The components of income before income taxes are as follows:

	Year Ended
(dollar amounts in thousands)	January 28, 2012		January 29, 2011		January 30, 2010
Domestic	$	36,633	$	52,319	$	41,921
Foreign		4,954		6,125		(4,305	)
Total	$	41,588	$	58,444	$	37,616

        The provision for income taxes includes the following:

	Year Ended
(dollar amounts in thousands)	January 28, 2012			January 29, 2011			January 30, 2010
Current:
Federal	$	—		$	—		$	398
State		602			491			(511	)
Foreign		1,557			2,210			149
Deferred:
Federal(a)		14,743			20,309			13,820
State		(3,887	)		(1,818	)		42
Foreign		(555	)		81			(395	)
Total income tax expense from continuing operations(a)	$	12,460		$	21,273		$	13,503

^(a)

Excludes tax benefit recorded to discontinued operations of $0.1 million, $0.3 million and $0.6 million in fiscal 2011, 2010 and 2009, respectively.

        A reconciliation of the statutory federal income tax rate to the effective rate for income tax expense follows:

	Year Ended
	January 28, 2012			January 29, 2011			January 30, 2010
Statutory tax rate		35.0	%		35.0	%		35.0	%
State income taxes, net of federal tax		3.2			2.4			2.4
Job credits		(1.5	)		(0.3	)		(0.9	)
Hire credits		(2.1	)		—			—
Tax uncertainty adjustment		(0.1	)		0.2			(0.5	)
Valuation allowance		(8.3	)		(3.5	)		—
Non deductible expenses		2.0			0.5			0.3
Stock compensation		0.1			0.2			0.8
Foreign taxes, net of federal tax		1.7			2.4			(0.7	)
Other, net		—			(0.5	)		(0.5	)
		30.0	%		36.4	%		35.9	%

        Items that gave rise to the deferred tax accounts are as follows:

(dollar amounts in thousands)	January 28, 2012			January 29, 2011
Deferred tax assets:
Employee compensation	$	5,008		$	3,060
Store closing reserves		1,365			1,064
Legal reserve		341			569
Benefit accruals		5,922			3,576
Net operating loss carryforwards—Federal		16,473			2,527
Net operating loss carryforwards—State		111,588			107,941
Tax credit carryforwards		17,877			17,086
Accrued leases		15,916			12,107
Interest rate derivatives		5,730			5,960
Deferred gain on sale leaseback		56,325			61,904
Deferred revenue		5,621			5,871
Other		1,951			2,570
Gross deferred tax assets		244,117			224,235
Valuation allowance		(103,915	)		(104,486	)
		140,202			119,749
Deferred tax liabilities:
Depreciation	$	54,284		$	44,634
Inventories		65,886			57,538
Real estate tax		3,307			3,132
Insurance and other		6,159			2,574
Debt related liabilities		3,903			2,187
		133,539			110,065
Net deferred tax asset	$	6,663		$	9,684

        As of January 28, 2012 and January 29, 2011, the Company had available tax net operating losses that can be carried forward to future years. The Company has $16.5 million of deferred tax assets related to federal net operating loss carryforwards which begin to expire in 2027. The Company has $2.7 million of deferred tax assets related to state tax net operating loss carryforwards related to unitary filings of which 2.4% will expire in the next five years for which a full valuation allowance has been recorded. The balance of $108.8 million of the Company's net operating loss carryforwards relate to separate company filing jurisdictions that will expire in various years beginning in 2012 of which $106.2 million have full valuation allowances recorded against them.

        The tax credit carryforward at January 28, 2012 consists of $7.3 million of alternative minimum tax credits, $4.0 million of work opportunity credits, $0.9 millions of hire tax credits and $5.7 million of state and Puerto Rico tax credits. The alternative minimum credits have an indefinite life and the other credits are scheduled to expire in various years starting from 2012 of which $0.9 million have full valuation allowances recorded against them. The tax credit carryforward at January 29, 2011 consists of $7.3 million of alternative minimum tax credits, $3.4 million of work opportunity credits and $6.4 million of state and Puerto Rico tax credits of which $3.3 million have full valuation allowances recorded against them.

        The temporary differences between the book and tax treatment of income and expenses result in deferred tax assets and liabilities, which are included within the consolidated balance sheets. The Company must assess the likelihood that any recorded deferred tax assets will be recovered against future taxable income. To the extent the Company believes it is more likely than not that the asset will not be recoverable, a valuation allowance must be established. To the extent the Company establishes a valuation allowance or changes the allowance in a future period, income tax expense will be impacted. Based on the Company's improved performance and tax restructuring, the Company released $5.3 million of gross valuation allowances ($3.6 million net of federal benefit) on certain state net operating loss carryforwards and state credits during fiscal 2011.

        The Company and its subsidiaries file income tax returns in the U.S. federal, various states and Puerto Rico jurisdictions. The Company's U.S. federal returns for tax years 2004 and forward are subject to examination. State and local income tax returns are generally subject to examination for a period of three to five years after filing of the respective return. The Company has various state income tax returns in the process of examination.

        A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

(dollar amounts in thousands)	January 28, 2012			January 29, 2011		January 30, 2010
Unrecognized tax benefit balance at the beginning of the year	$	4,131		$	2,411	$	2,458
Gross increases for tax positions taken in prior years		—			1,331		646
Gross decreases for tax positions taken in prior years		—			—		(526	)
Gross increases for tax positions taken in current year		235			389		296
Settlements taken in current year		—			—		(271	)
Lapse of statute of limitations		(1,002	)		—		(192	)
Unrecognized tax benefit balance at the end of the year	$	3,364		$	4,131	$	2,411

        The Company recognizes potential interest and penalties for unrecognized tax benefits in income tax expense and, accordingly, the Company recognized $0.1 million in fiscal 2011 and no material income tax expense in fiscal 2010 related to potential interest and penalties associated with uncertain tax positions. At January 28, 2012, January 29, 2011, and January 30, 2010, the Company has recorded $0.3 million, $0.2 million, and $0.2 million, respectively, for the payment of interest and penalties which are excluded from the unrecognized tax benefit noted above.

        Unrecognized tax benefits include $1.3 million, $1.4 million, and $1.3 million, at January 28, 2012, January 29, 2011 and January 30, 2010, respectively, of tax benefits that, if recognized, would affect the Company's annual effective tax rate. The Company believes it is reasonably possible that the amount will increase or decrease within the next twelve months; however, it is not currently possible to estimate the impact of the change.