Notes to Consolidated Financial Statements

Note 10:
Income Taxes

Federal, state and foreign income taxes from continuing operations consisted of the following:

The amounts "allocated to contributed capital" relate to deductions recognizable only for tax purposes from the exercise of non-qualified stock options and the disqualifying dispositions of stock purchased under the Company's incentive stock option plan. The benefit recognized in fiscal 1996 for a change in tax status relates to establishing deferred tax assets for an acquired S corporation.

The United States and foreign components of income (loss) before income taxes from continuing operations are as follows:

At January 30, 1999 unremitted earnings of subsidiaries outside the United States were deemed to be permanently invested. No deferred tax liability has been recognized with regard to the remittance of such earnings. It is not practicable to estimate the income tax liability that might be incurred if such earnings were remitted to the United States.

The components of the net deferred tax assets and liabilities as of January 30, 1999 and January 31, 1998 are as follows:

At January 30, 1999 the Company had $49,305,000 of net operating loss carryforwards of which $6,191,000 and $43,114,000 are for United States and foreign tax purposes, respectively. The U.S. losses begin to expire in 2007, while the foreign losses are generally not subject to expiration dates.

Included in the net operating loss carryforwards are losses from acquired subsidiaries. The utilization of these carryforwards may be affected by limitations under the Internal Revenue Code, and therefore, the benefit of these pre-acquisition net operating loss carryforwards may be limited.

The net change in the valuation allowance for deferred taxes in the year ended January 30, 1999 and January 31, 1998 is no change and a decrease of $3,794,000, respectively. The valuation allowance as of January 30, 1999 and January 31, 1998 is related to acquired entities for which any subsequently recognized tax benefits would be allocated to reduce goodwill. The Company reviewed the need for a valuation allowance related to deferred tax assets in each year and determined that no adjustment was required. It was determined that it was more likely than not that a portion of the deferred tax assets, comprised primarily of operating loss carryforwards of acquired companies, may not be realized.

The reconciliation of the differences between the Company's expense (benefit) for income taxes and taxes at the statutory rate, based on income from continuing operations, is as follows: