Income Taxes

12 Months Ended

Feb. 03, 2018

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

Note 11. Income Taxes

Income tax expense (benefit) consists of the following:

	Fiscal Year
	2017		2016				2015
($ in thousands)
Federal - current	$	(500)	$	-		$	-
State - current		201		215			181
Deferred		-		(6,988	)		-
Income tax expense (benefit)	$	(299)	$	(6,773	)	$	181

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

	Fiscal Year
	2017		2016		2015
Federal statutory rate		33.7%		35.0%		35.0%
State income taxes		(0.5%)		(6.0%)		4.1%
Change in valuation allowance		36.1%		(57.2%)		(39.0%)
Cash surrender value - insurance / benefit program		7.0%		4.0%		5.3%
Contingent consideration		2.6%		19.1%		—%
Change in US Federal Statutory Tax Rate		(79.4%)		—%		—%
Deferred tax benefit - acquisition		—%		196.1%		—%
Other		1.2%		(0.9%)		0.9%
Effective tax rate		0.7%		190.1%		6.3%

The Other category is comprised of various items, including the impacts of non-deductible meals, dues, penalties, and the federal current tax benefit on refundable AMT tax credit.

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

	February 3, 2018			January 28, 2017
($ in thousands)
DEFERRED TAX ASSET
Accrued Expenses	$	260		$	400
Inventory		-			347
Retirement and compensation related accruals		6,724			9,063
Fixed assets		7,561			1,718
Federal and state net operating loss and credit carry forwards		64,807			83,221
Real estate leases, included deferred rent		2,446			4,141
Losses on investment		827			1,268
Others		577			901
Gross deferred tax assets before valuation allowance		83,202			101,059
Less: valuation allowance		(76,810	)		(89,443	)
Total deferred tax assets	$	6,392		$	11,616
DEFERRED TAX LIABILITIES
Intangibles	$	(6,193	)	$	(11,616	)
Inventory		(199	)		-
Total deferred tax liabilities	$	(6,392	)	$	(11,616	)
NET DEFERRED TAX ASSET	$	-		$	-

The Company has a net operating loss carryforward of $208.3 million for federal income tax purposes and approximately $273.4 million for state income tax purposes as of the end of fiscal 2017 that expire at various times through 2037 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 $0.5 million, which will expire in various amounts through 2026. The Company has state tax credit carryforwards of $1.1 million, of which $0.2 million will expire in 2027 with the remainder available indefinitely.

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. Based on the available objective evidence, management concluded that a full valuation allowance should be recorded against its deferred tax assets. As of February 3, 2018, the valuation allowance decreased to $76.8 million from $89.4 million at January 28, 2017. The decrease in the Company’s deferred tax assets was caused primarily by enactment of the Tax Cuts and Jobs Act which was enacted on December 22, 2017 and changes in certain deductible temporary differences to offset income before income taxes earned in fiscal 2017. Management will continue to assess the valuation allowance against the gross deferred assets.

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

	Fiscal Year
	2017		2016		2015
($ in thousands)
Unrecognized tax benefits at beginning of year	$	1,930	$	1,930	$	1,930
Increases in tax positions from prior years		-		-		-
Decreases in tax positions from prior years		-		-		-
Increases in tax positions for current years		-		-		-
Settlements		-		-		-
Lapse of applicable statute of limitations		-		-		-
Unrecognized tax benefits at end of year	$	1,930	$	1,930	$	1,930

As of February 3, 2018, the Company had $1.9 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 and all material state and local income tax matters through fiscal 2013.

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 Statements of Operations. During fiscal 2017, the Company accrued a provision for interest expense of $0.2 million. As of February 3, 2018, the liability for uncertain tax positions reflected in the Company’s Consolidated Balance Sheets was $3.1 million, including accrued interest and penalties of $2.3 million.

On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was enacted. The Act makes broad and complex change to the U.S. tax code including a significant reduction to the U.S. federal corporate tax rate from 35 percent to 21 percent effective January 1, 2018. Accordingly, the federal deferred tax assets were written down to account for the change. The write down is reflected in both the valuation allowance and the deferred tax assets which total $34.0 million. This change is also presented in the effective tax rate schedule as a reduction to the current year losses by 79.3%. The valuation allowance rate impact includes an offsetting reduction for the tax rate which results in no change to the provision for income taxes.

The Act also repeals the Corporation Alternative Minimum Tax (“AMT”) for tax years beginning after December 31, 2017.  Any AMT carryover credits will be refundable starting in the 2018 tax year, remaining credit will be fully refundable in 2021, as such, the Company recorded a current benefit in its' financial statements.