NOTE 15 - INCOME TAXES

All Company operations are domestic. Income tax expense consisted of the following (in thousands):



	Fiscal Year
	2013			2012			2011
Federal income tax expense:
Current	$	9,462		$	17,467		$	8,108
Deferred	(761		)	1,170			6,101
	8,701			18,637			14,209
State income tax expense:
Current	1,509			3,626			1,673
Deferred	(47		)	(62		)	433
	1,462			3,564			2,106

	$	10,163		$	22,201		$	16,315

Reconciliation between the federal income tax expense charged to income before income tax computed at statutory tax rates and the actual income tax expense recorded follows (in thousands):



	2013			2012			2011

Federal income tax expense at the statutory rate	$	9,382		$	21,133		$	16,546
State income taxes, net	974			2,199			1,411
Uncertain tax position	531			—			—
Other	399			(99		)	(625		)
Job credits	(1,123		)	(1,032		)	(1,017		)
	$	10,163		$	22,201		$	16,315

Deferred tax assets (liabilities) consist of the following (in thousands):



	February 1, 2014			February 2, 2013
Gross deferred tax assets:
Net operating loss carryforwards	$	599		$	717
Accrued expenses	3,031			3,241
Lease obligations	20,658			23,135
Deferred compensation	13,371			13,885
Deferred income	5,319			6,049
Other	1,366			1,486
	44,344			48,513
Gross deferred tax liabilities:
Inventory	(9,675		)	(6,263		)
Depreciation and amortization	(54,570		)	(62,047		)
	(64,245		)	(68,310		)

Valuation allowance	(464		)	(498		)
Net deferred tax liabilities	$	(20,365	)	$	(20,295	)

ASC No. 740, Income Taxes, requires recognition of future tax benefits of deferred tax assets to the extent such realization is more likely than not. Net non-current deferred tax liabilities were $15.6 million and $19.5 million and net current deferred tax liabilities were $4.7 million and $0.8 million at February 1, 2014 and February 2, 2013, respectively. Consistent with the requirements of ASC No. 740, the tax benefits recognized related to pre-reorganization deferred tax assets have been recorded as a direct addition to additional paid-in capital. The remaining valuation allowance of $0.5 million and $0.5 million at February 1, 2014 and February 2, 2013, respectively, was established for pre-reorganization state net operating losses, which may expire prior to utilization. Adjustments are made to reduce the recorded valuation allowance when positive evidence exists that is sufficient to overcome the negative evidence associated with those losses.

The Company has net operating loss carryforwards for state income tax purposes of approximately $13.6 million which, if not utilized, will expire in varying amounts between 2014 and 2021. The Company does not have any net operating loss carryforwards for federal income tax purposes.

As of February 1, 2014, the total unrecognized tax benefit was $0.5 million. Of this total, $0.5 million represents the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in a future period. A reconciliation of the beginning and ending amount of total unrecognized tax benefits, including associated interest, is as follows (in thousands):



	2013
Balance, beginning of period	$	—
Additions based on tax positions related to 2013	105
Additions for tax positions for prior years	426
Balance, end of period	$	531

The Company files income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions. The Company has concluded all U.S. federal income tax matters with the IRS for tax years through 2008, has a limited scope extension of time to assess taxes for tax year 2009, and is currently under audit for tax year 2010. The Company is subject to U.S. federal income tax examinations by tax authorities for the fiscal year ended January 29, 2011 and forward. The Company is also subject to audit by the taxing authorities of 38 states for years generally after 2008.

Although the outcome of tax audits is uncertain, the Company believes that adequate amounts of tax, interest and penalty have been accrued for any adjustments that are expected to result from the years still subject to examination. The company recognizes penalty and interest accrued related to unrecognized tax benefits as an income tax expense. During the years ended February 1, 2014, February 2, 2013, and January 28, 2012, the amount of penalties and interest accrued was almost nil.

Over the next 12 months, it is reasonably possible that the total unrecognized tax benefits could be reduced by $0.5 million if our position is sustained upon audit, the controlling statute of limitations expires or we agree to a disallowance. The Company classifies unrecognized tax benefits expected to be settled within one year as current tax liabilities.