4.	Income Taxes

At October 29, 2011, the Company had a valuation allowance of approximately $47.1 million against its deferred tax assets. The deferred tax assets include approximately $19.7 million of net operating loss carryforwards that expire through 2029 and approximately $8.2 million of deferred gain on sale-leaseback and, to a lesser extent, other book/tax timing differences.

The ability to reduce the valuation allowance of $47.1 million is dependent upon the Company’s ability to achieve sustained taxable income to realize its deferred tax assets. Because fiscal 2011 earnings will be a significant factor in determining the amount of the valuation allowance that can be reversed, the deferred tax assets remain fully reserved at October 29, 2011. However, based on the Company’s results of operations for the past two fiscal years as well as its projected earnings for fiscal 2011, the Company expects to be able to reverse substantially all of the valuation allowance in the fourth quarter of fiscal 2011. The Company expects the reversal of the valuation allowance will increase net income for fiscal 2011 by approximately $40.0 million.

The Company’s effective tax rate for the first nine months of fiscal 2011 has been reduced from the statutory rate due to the utilization of the Company’s fully reserved net operating loss carryforwards. The Company expects its effective rate to return to a normalized rate of approximately 40% once the valuation allowance is reversed.

A tax position is recognized as a benefit only if it is "more likely than not" that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the "more likely than not" test, no tax benefit is recorded. The charge for taxation is based on the results for the year as adjusted for items that are non-assessable or disallowed. The charge is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Pursuant to Topic 740, Income Taxes, the Company will recognize the benefit from a tax position only if it is more likely than not that the position would be sustained upon audit based solely on the technical merits of the tax position. At October 29, 2011, the Company had no material unrecognized tax benefits. During the third quarter of fiscal 2010, the Company recognized a tax benefit of $0.8 million, or $0.02 per diluted share, as a result of the reduction in its liability for uncertain tax positions, due to the expiration of certain statutes of limitation.

The Company is subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. The Company has concluded all U.S. federal income tax matters for years through fiscal 1998, with remaining fiscal years subject to income tax examination by federal tax authorities.

The Company’s policy is to recognize accrued interest and penalties related to unrecognized tax benefits in its income tax provision. The Company has not accrued or paid interest or penalties which were material to its results of operations for the first nine months of fiscal 2011.