Saks Fifth Avenue 2010 Annual Report Download - page 67

SAKS INCORPORATED & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share amounts)
Components of the net deferred tax asset or liability recognized in the consolidated balance sheets were as
follows:
January 29,
2011
January 30,
2010
Current:
Deferred tax assets:
Accrued expenses ................................................ $ 40,713 $ 34,478
NOL carryforwards ............................................... 55,930 —
Valuation allowance .............................................. (6,305) —
Deferred tax liabilities:
Inventory ....................................................... (4,222) 1,496
Net current deferred tax asset ........................................... $ 86,116 $ 35,974
Non-current:
Deferred tax assets:
Capital leases ................................................... $ 21,409 $ 22,000
Rent adjustments ................................................. 21,098 20,384
Pension ........................................................ 15,439 14,638
Other long-term liabilities .......................................... 26,800 33,853
AMT Credit ..................................................... 22,671 23,103
NOL carryforwards ............................................... 60,476 138,122
Valuation allowance .............................................. (23,776) (42,810)
Deferred tax liabilities:
Property and equipment ........................................... 19,283 12,053
Other assets ..................................................... 8 11
Net non-current deferred tax asset ....................................... $163,408 $221,354
Total net deferred tax asset ............................................. $249,524 $257,328
The federal and state net operating loss (“NOL”) carryforwards will expire between 2011 and 2030. The
majority of the NOL carryforward is a result of the net operating losses incurred during the fiscal years ended
January 30, 2010 and January 31, 2009 due principally to difficult market and macroeconomic conditions. We
have concluded, based on the weight of all available positive and negative evidence that all but $30,081 of these
tax benefits relating to certain state losses are more likely than not to be realized in the future. Therefore, a
valuation allowance for the $30,081 has been established.
The Company evaluates the realizability of its deferred tax assets on a quarterly basis. In 2010, this
evaluation resulted in a net reduction to the reserve against state deferred tax assets of $2,228, impacting the
Company’s results of operations. A similar analysis was performed in 2009 and 2008, which resulted in an
additional reserve against state deferred tax assets of $3,045 and $6,110, respectively. While the Company has
incurred a cumulative loss over the three year period ended January 29, 2011, after evaluating all available
evidence including past operating results, current year operating income, the macroeconomic factors contributing
to the 2008 and 2009 fiscal loss, the length of the carryforward periods available and the Company’s forecast of
future taxable income, including the availability of prudent and feasible tax planning strategies, the Company
concluded that it is more likely than not the deferred tax asset, net of the $30,081 valuation allowance related to
state NOLs, will be realized. The Company will continue to assess the need for additional valuation allowance in
the future. If future results are less than projected or tax planning strategies are no longer viable, then additional
valuation allowances may be required to reduce the deferred tax assets which could have a material impact on the
Company’s results of operations in the period in which it is recorded.
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