INCOME TAXES

12 Months Ended

Jan. 28, 2017

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 6 — INCOME TAXES

The provision (benefit) for income taxes consists of the following for the years ended February 3, 2018, January 28, 2017 and January 30, 2016: 

(dollars in thousands)	2017		2016			2015
Current
Federal	$	-	$	(3,978	)	$	(5,351	)
State		234		774			870
		234		(3,204	)		(4,481	)
Deferred
Federal		705		(11,927	)		(915	)
State		302		3,277			(12	)
		1,007		(8,650	)		(927	)
	$	1,241	$	(11,854	)	$	(5,408	)

On December 22, 2017, the TCJA was enacted by the U.S. government. The TCJA contains several key provisions that affected the Company. The enacted provisions impacting the current financial statements include a permanent reduction of the U.S. corporate income tax rate from 35 to 21 percent, effective January 1, 2018. As the Company has a February 3, 2018 fiscal year-end, the impact of the lower rate was phased in resulting in a U.S. statutory federal tax rate of approximately 33.7% for the fiscal year ending February 3, 2018 and a 21% U.S. statutory federal rate for fiscal years thereafter. Other enacted provisions which may impact the Company beginning in fiscal 2019 include limitations on the deductibility of executive compensation and changes to the net operating loss carryover rules.

The Securities and Exchange Commission (SEC) staff issued Staff Accounting Bulletin No. 118 (SAB 118) to address the application of U.S. GAAP in situations where a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the TCJA. To the extent that a company’s accounting for certain income tax effects of the TCJA is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the TCJA.

The ultimate impact may differ from provisional amounts recorded, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, and additional regulatory guidance that may be issued. The accounting is expected to be completed within one year from the enactment date of the TCJA.

Based on the current analysis, the Company recorded a provisional income tax effect of $0.0 million, after considering changes to the valuation allowance, in its consolidated financial statements for the fiscal year ended February 3, 2018. The Company was able to determine a reasonable estimate for the re-measurement of the Company’s U.S. federal deferred tax assets and liabilities at the lower rate (a reduction to net deferred tax assets of approximately $18.8 million offset by an equal reduction to the valuation allowance). The Company’s analysis of this item is incomplete at this time. The Company will complete the accounting for this item during the measurement period, which will not exceed beyond one year from the enactment date.

The income tax effects of temporary differences that give rise to significant portions of the deferred income tax assets and deferred income tax liabilities as of year-end are presented below:

(dollars in thousands)	2017			2016
Deferred income tax assets:
Accrual for incentive compensation	$	2,782		$	5,446
Allowance for doubtful accounts		653			763
Insurance accruals		1,508			2,117
Other accruals		604			1,016
Net operating loss carryforwards		48,087			20,705
Deferred Revenue		352			583
Federal benefit on state reserves		55			91
WOTC Credit Carryforward		5,295			3,896
Amortization of intangibles		16,925			18,448
Postretirment benefits		159			-
Contribution Carryforward		315			424
Total deferred income tax assets		76,735			53,489
Less: Valuation allowance		59,299			22,183
Deferred income tax assets, net of valuation allowance		17,436			31,306
Deferred income tax liabilities:
Postretirement benefits		-			(43	)
Property, plant and equipment		(5,567	)		(12,358	)
Inventory valuation		(11,173	)		(19,557	)
Prepaid expenses		(588	)		(1,322	)
Total deferred income tax liabilities		(17,328	)		(33,280	)
Net deferred income tax assets/liabilities	$	108		$	(1,974	)

The net operating loss carryforwards are available to reduce federal and state income taxes in future years. The federal carryforward is approximately $158.0 million and will expire in 2038. Carryforwards total approximately $323.2 million for state income tax purposes and expire at various times during the fiscal years 2018 through 2038. Federal income tax credit carryforwards total approximately $5.3 million and begin to expire in 2036.

We maintain a valuation allowance for federal and state net operating losses and tax credits that we do not expect to utilize prior to their expiration. During 2017, the valuation allowance increased $34.7 million, and during 2016, the valuation allowance increased $19.6 million. Based upon the expected reversal of deferred tax liabilities, management believes that it is more likely than not that the results of operations will generate sufficient taxable income to realize the deferred income tax assets recorded after giving consideration to the valuation allowance.

A reconciliation of the statutory federal income tax rate to the effective income tax rate is as follows:

	2017			2016			2015
Income tax provision at statutory rate		33.7	%		35.0	%		35.0	%
State income taxes, net of federal benefit		3.5			4.6			0.8
Tax credits, principally jobs		0.6			1.0			8.6
Uncertain tax provisions		-			-			-
Change in valuation allowance		(25.4	)		(25.4	)		(7.3	)
TCJA Rate Change		(13.7	)		-			-
Other		1.3			0.2			(0.2	)
Permanent differences		(0.9	)		(0.6	)		0.8
Effective income tax rate		(0.9	)%		14.8	%		37.7	%

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

(in millions)	2017		2016		2015
Beginning balance	$	0.4	$	0.4	$	0.4
Additions for tax positions of prior years		0.5		-		-
Additions for current year tax positions		1.4		-		-
Ending balance	$	2.3	$	0.4	$	0.4

As of February 3, 2018, our liability for unrecognized tax benefits totaled $2.3 million and is recorded in our Consolidated Balance Sheet within “Other noncurrent liabilities.” Approximately $0.4 million of such balance, if recognized, would affect our effective tax rate. Examinations by the state jurisdictions are expected to be completed within the next 12 months which could result in a change to our unrecognized tax benefits, but we are unable to estimate the amounts.

FASB ASC 740 further requires that interest and penalties required to be paid by the tax law on the underpayment of taxes should be accrued on the difference between the amount claimed or expected to be claimed on the tax return and the tax benefit recognized in the financial statements. The Company includes potential interest and penalties recognized in accordance with FASB ASC 740 in the financial statements as a component of income tax expense. As of February 3, 2018, accrued interest and penalties related to our unrecognized tax benefits totaled $0.1 million and $0.1 million, respectively. As of January 28, 2017, accrued interest and penalties related to our unrecognized tax benefits totaled $0.1 million and $0.1 million, respectively. Both accrued interest and penalties are recorded in the Consolidated Balance Sheet within “Other noncurrent liabilities.”

The Company files numerous consolidated and separate company income tax returns in the U.S. federal jurisdiction and in many U.S. state jurisdictions. With few exceptions, we are subject to U.S. federal, state, and local income tax examinations by tax authorities for years 2013-2016. However, tax authorities have the ability to review years prior to these to the extent we utilized tax attributes carried forward from those prior years.