Income Taxes

12 Months Ended

Feb. 02, 2019

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

Note 10. Income Taxes

Income tax expense (benefit) consists of the following:

	Fiscal Year
(amounts in thousands)	2018			2017
Federal - current	$	(184	)	$	(500	)
State - current		264			201
Income tax expense (benefit)	$	80		$	(299	)

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

	2018			2017
Federal statutory rate		21.0	%		33.7	%
State income taxes, net of federal tax effect		(0.3	%)		(0.5	%)
Change in Valuation Allowance		(12.5	%)		36.1	%
Cash surrender value - insurance / benefit program		—	%		7.0	%
Goodwill Impairment		(8.5	%)		—	%
Contingent consideration		0.1	%		2.6	%
Change in US Federal Statutory Tax Rate		—	%		(79.4	%)
Other		0.1	%		1.2	%
Effective tax rate		(0.1	%)		0.7	%

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

(amounts in thousands)	February 2, 2019			February 3, 2018
DEFERRED TAX ASSETS
Accrued Expenses	$	559		$	260
Retirement and compensation related accruals		6,001			6,724
Fixed assets		6,463			7,561
Federal and state net operating loss and credit carry forwards		75,117			64,807
Real estate leases, included deferred rent		1,973			2,446
Losses on investment		584			827
Others		556			577
Gross deferred tax assets before valuation allowance	$	91,253		$	83,202
Less: valuation allowance		(90,161	)		(76,810	)
Total deferred tax assets	$	1,092		$	6,392
DEFERRED TAX LIABILITIES
Intangibles	$	(922	)	$	(6,193	)
Inventory		(170	)		(199	)
Total deferred tax liabilities	$	(1,092	)	$	(6,392	)
NET DEFERRED TAX ASSET	$	—		$	—

The Company, at the end of fiscal 2018, has a net operating loss carryforward of $253.5 million for federal income tax purposes which will expire at various times throughout 2038 with a portion being available indefinitely. The Company has approximately $289.0 million of net operating loss carryforward for state income tax purposes as of the end of fiscal 2018 that expire at various times through 2038 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 2026. The Company has state tax credit carryforwards of $1.1 million, of which $0.2 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. Based on the available objective evidence, management concluded that a full valuation allowance should be recorded against its deferred tax assets. As of February 2, 2019, the valuation allowance increased to $90.2 million from $76.8 million at February 3, 2018. 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
(amounts in thousands)	2018		2017
Unrecognized tax benefits at beginning of year	$	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

As of February 2, 2019, 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 2018, the Company accrued a provision for interest expense of $0.2 million. As of February 2, 2019, the liability for uncertain tax positions reflected in the Company’s Consolidated Balance Sheets was $3.3 million, including accrued interest and penalties of $2.5 million.

On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was enacted. The Act makes broad and complex changes 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. These changes were presented on prior year, rate reconciliation, accordingly, the federal deferred tax assets were written down to account for the change in fiscal 2017. The write down is reflected in both the valuation allowance and the deferred tax assets which total $35.0 million in fiscal 2017. As of February 3, 2018 this change is also presented in the effective tax rate schedule as a reduction to the prior year losses by 79.4%. 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.