Income Taxes

12 Months Ended

Jan. 28, 2012

Income Tax Disclosure [Text Block]

Note 5. Income Taxes

Income tax expense (benefit) consists of the following:

	Fiscal Year
	2011				2010			2009
	($ in thousands)
Federal—current			($15	)		$	30		($10,984	)
State—current			165				245		332
Deferred			—				0		(2,333	)
Income tax expense (benefit)		$	150			$	275		($12,985	)

A reconciliation of the Company’s effective income tax rate with the Federal statutory rate is as follows:

	Fiscal Year
	2011			2010			2009
Federal statutory rate		35.0	%		35.0	%		35.0	%
State income taxes, net of federal tax effect		4.6	%		(0.5	%)		(0.4	%)
Change in valuation allowance		(32.8	%)		(35.7	%)		(11.8	%)
Cash surrender value—insurance/benefit Programs		(1.1	%)		0.8	%		0.5	%
Other		0.8	%		(0.5	%)		0.1	%
Effective income tax rate		6.5	%		(0.9	%)		23.4	%

During 2009, federal tax legislation was enacted which allowed for an increased carryback period for net operating losses incurred in 2008. Previously, the 2008 net operating loss was included in gross deferred tax assets against which a full valuation allowance was provided. The Company filed a refund claim under this new legislation and in 2009 received a federal tax refund of $10.4 million and recorded a current tax benefit.

The Other category is comprised of various items, including the impacts of non deductible meals, dues, penalties, amortization, uncertain tax positions, tax attribute and carryback limitations, and graduate tax brackets.

Significant components of the Company’s deferred tax assets are as follows:

	January 28, 2012				January 29, 2011
	($ in thousands)
DEFERRED TAX ASSETS
Accrued expenses		$	1,120			$	1,234
Inventory			601				842
Retirement and compensation related accruals			9,058				7,013
Fixed assets			13,996				16,212
Federal and state net operating loss and credit carryforwards			83,849				80,575
Real estate leases, including deferred rent			3,117				4,383
Losses on investments			1,623				1,659
Goodwill			2,018				2,873
Other			913				985
Gross deferred tax assets before valuation allowance			116,295				115,776
Less: valuation allowance			(116,295	)			(115,776	)
Total deferred tax assets		$	—			$	—
DEFERRED TAX LIABILITIES			—				—
NET DEFERRED TAX ASSET		$	—			$	—

The Company has a net operating loss carryforward of $174.9 million for federal income tax purposes and approximately $310 million for state income tax purposes as of the end of Fiscal 2011 that expire at various times through 2030 and are subject to certain limitations and statutory expiration periods. The state net operating loss carryforwards are subject to various business apportionment factors and multiple jurisdictional requirements when utilized. The Company has federal tax credit carryforwards of $1.2 million, of which $0.2 million will expire in 2026, with the remainder available indefinitely. The Company has state tax credit carryforwards of $1.1 million, of which $0.3 million will expire in 2027.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. Management considers the scheduled reversal of taxable temporary differences, projected future taxable income and tax planning strategies in making this assessment. As of January 28, 2012, the Company has incurred a cumulative three-year loss. Based on the cumulative three-year loss and other available objective evidence, management concluded that a full valuation allowance should be recorded against its deferred tax assets. As of January 28, 2012, the valuation allowance increased to $116.3 million from $115.8 million at January 29, 2011 because management believes that it is more likely than not that the tax benefit will not be realized. The increase in the valuation allowance equals the increase in gross deferred tax assets and is consistent with the Company’s decision to record a full valuation allowance against deferred tax assets that have been recorded in the normal course of business, as described above.

During Fiscal 2011 and Fiscal 2010 the Company paid income taxes, net of refunds, of approximately $0.1 million and $0.2 million, respectively.

During Fiscal 2009, the Company paid income taxes of approximately $0.2 million and received income tax refunds of approximately $10.5 million.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits is provided below. Amounts presented excluded interest and penalties, where applicable, on unrecognized tax benefits:

(Amounts in thousands)
Unrecognized tax benefits at January 29, 2011	$	2,308
Increases in tax positions from prior years		—
Decreases in tax positions from prior years		—
Increases in tax positions for current year		—
Settlements		—
Lapse of applicable statute of limitations		(230	)
Unrecognized tax benefits at January 28, 2012	$	2,078

As of January 28, 2012, the Company had $2.1 million of gross unrecognized tax benefits, $1.5 million of which would affect the Company’s tax rate if recognized. While it is reasonably possible that the amount of unrecognized tax benefits will increase or decrease within the next twelve months, the Company does not expect the change to have a significant impact on its results of operations or financial position.

The Company is subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. The Company has substantially concluded all federal income tax matters through Fiscal 2007 and all material state and local income tax matters through Fiscal 2007.

The Company’s practice is to recognize interest and penalties associated with its unrecognized tax benefits as a component of income tax expense in the Company’s Consolidated Statement of Operations. During Fiscal 2011, the Company accrued a provision for interest and penalties of $0.1 million. As of January 28, 2012, the liability for uncertain tax positions reflected in the Company’s Consolidated Balance Sheets was $2.2 million, including accrued interest and penalties of $1.4 million.