Income Taxes

12 Months Ended

Feb. 02, 2013

Income Tax Disclosure [Text Block]

Note 6. Income Taxes

Income tax expense consists of the following:

	Fiscal Year
	2012		2011			2010
	($ in thousands)
Federal – current	$	18		($15	)	$	30
State – current		230		165			245
Deferred		—		—			—
Income tax expense	$	248	$	150		$	275

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

	Fiscal Year
	2012			2011			2010
Federal statutory rate		35.0	%		35.0	%		35.0	%
State income taxes, net of federal tax effect		0.5	%		4.6	%		(0.5	%)
Change in valuation allowance		(34.3	%)		(32.8	%)		(35.7	%)
Cash surrender value – insurance/ benefit  programs		(0.6	%)		(1.1	%)		0.8	%
Other		0.1	%		0.8	%		(0.5	%)
Effective income tax rate		0.7	%		6.5	%		(0.9	%)

The Other category is comprised of various items, including the impacts of non deductible meals, dues, penalties, amortization and graduated tax brackets.

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

	February 2,			January 28,
	2013			2012
	($ in thousands)
DEFERRED TAX ASSETS
Accrued expenses	$	999		$	1,120
Inventory		278			601
Retirement and compensation related accruals		10,290			9,058
Fixed assets		10,374			13,996
Federal and state net operating loss and credit carryforwards		74,642			83,849
Real estate leases, including deferred rent		2,299			3,117
Losses on investments		1,221			1,623
Goodwill		1,160			2,018
Other		926			913
Gross deferred tax assets before valuation allowance		102,189			116,295
Less: valuation allowance		(102,189	)		(116,295	)
Total deferred tax assets	$	—		$	—
DEFERRED TAX LIABILITIES		—			—
NET DEFERRED TAX ASSET	$	—		$	—

The Company has a net operating loss carryforward of $153.4 million for federal income tax purposes and approximately $266 million for state income tax purposes as of the end of Fiscal 2012 that expire at various times through 2031 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. 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, 2013, the valuation allowance decreased to $102.2 million from $116.3 million at January 28, 2012. The reduction in the Company’s deferred tax assets was caused primarily by the utilization of federal and state net operating loss carryforwards to absorb the taxable gain realized on the gain on sale of asset (see Note 3. in the Notes to the Consolidated Financial Statements). The valuation allowance equal to the gross deferred tax assets 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. Management will continue to assess the valuation allowance against the gross deferred assets.

During Fiscal 2012, Fiscal 2011 and Fiscal 2010 the Company paid income taxes, net of refunds, of approximately $0.1 million, $0.1 million and $0.2 million, respectively.

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		Fiscal			Fiscal
	2012		2011			2010
	($ in thousands)
Unrecognized tax benefits at beginning of the year	$	2,078	$	2,308		$	2,360
Increases in tax positions from prior years		—		—			29
Decreases in tax positions from prior years		—		—			—
Increases in tax positions for current year		—		—			—
Settlements		—		—			—
Lapse of applicable statute of limitations		—		(230	)		(81	)
Unrecognized tax benefits at end of the year	$	2,078	$	2,078		$	2,308

As of February 2, 2013, 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 and all material state and local income tax matters through Fiscal 2008.

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 2012, the Company accrued a provision for interest and penalties of $0.2 million. As of February 2, 2013, the liability for uncertain tax positions reflected in the Company’s Consolidated Balance Sheets was $2.4 million, including accrued interest and penalties of $1.6 million.