Income Taxes

12 Months Ended

Jan. 28, 2012

Income Taxes

Income Taxes

4.     Income Taxes

        The income tax provision as shown in the statements of operations includes the following:

	Year Ended January 28, 2012			Year Ended January 29, 2011			Year Ended January 30, 2010
Current:
Federal	$	2,857,000		$	4,354,000		$	5,650,000
State		(1,956,000	)		1,091,000			1,056,000
Foreign		770,000			970,000			817,000
		1,671,000			6,415,000			7,523,000
Deferred:
Federal		1,128,000			(1,059,000	)		295,000
State		122,000			(156,000	)		(7,000	)
		1,250,000			(1,215,000	)		288,000
	$	2,921,000		$	5,200,000		$	7,811,000

        A reconciliation of the actual income tax rates to the federal statutory rate follows:

	Year Ended January 28, 2012			Year Ended January 29, 2011			Year Ended January 30, 2010
Tax expense at U.S. statutory rate		34.0	%		34.2	%		35.0	%
State income taxes, net of federal income tax benefit		1.7			4.7			4.2
State income tax refund, net of federal income tax		(9.4	)		—			(2.0	)
Nondeductible expenses		0.7			1.0			1.1
Other		1.0			0.3			1.1
Tax provision		28.0	%		40.2	%		39.4	%

        A summary of deferred income tax assets is as follows:

	January 28, 2012					January 29, 2011
	Current			Non-Current		Current		Non-Current
Deferred tax assets:
Depreciation and Amortization	$	—			52,000	$	—		237,000
Deferred revenue		(38,000	)		154,000		—		—
Other		19,000			—		—		137,000
State income taxes		81,000			—		382,000		—
Compensation					1,024,000		858,000		970,000
Total deferred tax assets	$	62,000			1,230,000	$	1,240,000		1,344,000

        Foreign taxes include withholding required on royalty payments from foreign jurisdictions. Deferred tax assets primarily relate to state tax benefits, deferred revenue, and stock option compensation. We believe that it is more likely than not that the deferred tax assets will be realized based upon expected future income.

        The difference in our effective tax rate for Fiscal 2012 in comparison to Fiscal 2011 was primarily the result of settling income tax examinations with the California Franchise Tax Board attributable to the apportionment of net income. The settlement resulted in a tax provision decrease of approximately $1,000,000. Additionally, for tax years beginning in 2011, California provides for the election of a single sales apportionment formula. The effect of this election resulted in a tax provision decrease of approximately $290,000.

        The amount of unrecognized tax benefits was approximately $0.9 million and $1.1 million, respectively, at January 28, 2012 and January 29, 2011. At January 28, 2012, we had $0.9 million of unrecognized tax benefits that, if recognized, would affect the effective tax rate. The decrease in our uncertain tax benefits was due to an audit assessment settlement. The increase in our unrecognized tax benefits was due to un-asserted items. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	Amount
	(in Thousands)
Balance at January 30, 2010	$	800
Additions for tax positions related to current year		—
Additions/reductions for tax positions taken in prior years		400
Reductions for tax positions as a result of:
Settlements		(100	)
Lapse of Limitations		—
Balance at January 29, 2011	$	1,100
Additions for tax positions related to current year		—
Additions/reductions for tax positions taken in prior years		250
Reductions for tax positions as a result of:
Settlements		(450	)
Lapse of Limitations		—
Balance at January 28, 2012	$	900

        It is reasonably expected that $700,000 of the $900,000 of unrecognized tax benefits will settle in the next twelve months. We do not expect this change to have a significant impact on the results of operations or the financial position of the Company.

        In accordance with the adoption of ASC 740, we continue to include interest and penalties related to unrecognized tax benefits within the provision for taxes on the consolidated statements of income. As of January 29, 2011 and January 28, 2012, we have accrued $110,000 and $138,000, respectively, of interest relating to unrecognized tax benefits. These amounts are included in income taxes payable on our balance sheet.

        The Company files income tax returns in the U.S. federal and California state jurisdictions. For federal income tax purposes, the 2009 through 2011 tax years remain open for examination by the tax authorities under the normal three year statute of limitations. For state tax purposes, our 2008 through 2011 tax years remain open for examination by the tax authorities under a four year statute of limitations.