D. INCOME TAXES

The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes. Under ASC Topic 740, deferred tax assets and liabilities are recognized based on temporary differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. The accounting regulation requires current recognition of net deferred tax assets to the extent it is more likely than not such net assets will be realized. To the extent that the Company believes its net deferred tax assets will not be realized, a valuation allowance must be recorded against those assets.

Realization of the Company’s deferred tax assets, relating principally to federal net operating loss carryforwards, which expire from 2022 through 2031, is dependent on generating sufficient taxable income in the near term. The effect of the weakening economy on the Company’s retail business in fiscal 2008 had a significant impact on the Company’s revenue and profitability. Further, the conditions of the economy also negatively impacted its market value as a result of the deterioration of the capital markets and resulted in substantial impairments which contributed to the operating loss. Accordingly, in the fourth quarter of fiscal 2008, the Company recorded a valuation allowance of $28.6 million against its deferred tax assets.

During the fourth quarter of fiscal 2011, the Company determined that it was more likely than not that it would be able to realize the benefits of substantially all of its deferred tax assets in the United States. In reaching this determination, the Company considered the positive evidence of three years of improved profitability, its expectations regarding the generation of future taxable income, and its current market position and expected growth. As a result, the Company reversed $48.3 million in valuation allowance against its deferred tax assets in the United States offset by an increase of $0.5 million in valuation allowance against its foreign deferred tax assets, resulting in a net change in the valuation allowance of $47.8 million.

As of January 28, 2012, the Company had net operating loss carryforwards of $61.9 million for federal income tax purposes and $34.0 million for state income tax purposes that are available to offset future taxable income through fiscal year 2031. Additionally, the Company has alternative minimum tax credit carryforwards of $2.2 million, which are available to further reduce income taxes over an indefinite period. Additionally, the Company has $1.6 million and $0.5 million of net operating loss for tax purposes related to the Company’s operations in the Netherlands and Canada, respectively.

Included in the net operating loss carryforwards for both federal and state income tax is approximately $10.8 million relating to stock compensation deductions, the tax benefit from which, if realized, will be credited to additional paid-in capital.

The components of the net deferred tax assets as of January 28, 2012 and January 29, 2011 are as follows (in thousands):


	January 28, 2012			January 29, 2011
Deferred tax assets -current:
Inventory reserves	$	2,634		$	2,544
Accrued expenses and other		3,311			3,088
Gain on sale-leaseback		579			579
Gain on sale of LPI		(89	)
Valuation allowance		—			(6,211	)

Net deferred tax assets-current		6,435			—

Deferred tax assets –noncurrent:
Gain on sale-leaseback		7,525			8,104
Gain on sale of LPI		—			(170	)
Lease accruals		3,321			3,196
Net operating loss carryforward		22,435			21,403
Foreign tax credit carryforward		720			648
State tax credits		112			112
Unrecognized loss on foreign exchange		121			102
Unrecognized loss on pension and pension expense		3,018			2,100
Alternative minimum tax credit carryforward		2,178			2,178
Excess of book over tax (tax over book) depreciation/amortization		(3,414	)		1,310
Goodwill and intangibles		10,915			4,048

Subtotal		46,931			43,031
Valuation allowance		(2,996	)		(44,569	)

Net deferred tax assets –noncurrent	$	43,935		$	(1,538	)

Total deferred tax assets	$	50,370		$	(1,538	)

The components of income (loss) before income taxes consist of the following:


	FISCAL YEARS ENDED
(in thousands)	January 28, 2012			January 29, 2011			January 30, 2010
Domestic	$	(5,279	)	$	17,907		$	8,975
Foreign		(2,136	)		(1,816	)		(1,395	)

Total income (loss) before income taxes	$	(7,415	)	$	16,091		$	7,580

The provision (benefit) for income taxes from continuing operations consists of the following:


	FISCAL YEARS ENDED
(in thousands)	January 28, 2012			January 29, 2011			January 30, 2010
Current:
Federal and state	$	659		$	(119	)	$	628
Foreign		73			70			73

		732			(49	)		701

Deferred:
Federal and state		(50,810	)		769			769
Foreign		—			—			—

		(50,810	)		769			769

Total provision (benefit)	$	(50,078	)	$	720		$	1,470

The following is a reconciliation between the statutory and effective income tax rates in dollars:


	FISCAL YEARS ENDED
(in thousands)	January 28, 2012			January 29, 2011			January 30, 2010
Federal income tax at the statutory rate	$	(2,595	)	$	5,632		$	2,653
State income and other taxes, net of federal tax benefit		(124	)		751			334
Permanent items		52			405			616
Change in uncertain tax positions ⁽¹⁾		—			(799	)
Charge/(income) for valuation allowance ⁽²⁾		(47,784	)		(5,206	)		(2,320	)
Rate differential on foreign deferred tax assets		214
Other, net		159			(63	)		187

Provision (benefit) for income tax from continuing operations	$	(50,078	)	$	720		$	1,470

(1)	In the third quarter of fiscal 2010, the Company recognized a tax benefit of $0.8 million as a result of the reduction in its liability for uncertain tax positions, due to the expiration of certain statutes of limitation.

(2)	In the fourth quarter of fiscal 2011, the Company recognized a tax benefit of $47.8 million, as a result of reversing substantially all of the Company’s valuation allowance.

The Company made tax payments of $1.2 million, $0.9 million and $0.2 million for fiscal years 2011, 2010 and 2009, respectively.