INCOME TAXES

The components of income tax expense for the fiscal periods presented are as follows:



	Fiscal Year Ended
	February 1, 2014			February 2, 2013		January 28, 2012
	(In thousands)
Current income taxes:
Federal	$	—		$	—	$	(127	)
State	949			819		1,546
Total current	949			819		1,419
Deferred income taxes:
Federal	—			—		—
State	(152		)	15		(365		)
Total deferred	(152		)	15		(365		)
Total income tax expense	$	797		$	834	$	1,054

Included in fiscal 2013 and 2011 current income taxes, were tax benefits from uncertain tax positions of approximately $0.3 million and $0.2 million, respectively. In fiscal 2012, there were no material tax benefits from uncertain tax positions.

A reconciliation of income tax expense (benefit) to the amount of income tax expense that would result from applying the federal statutory rate to loss from continuing operations before income taxes for the fiscal periods presented was as follows:



	Fiscal Year Ended
	February 1, 2014			February 2, 2013			January 28, 2012
	(In thousands)
Benefit for income taxes at statutory rate	$	(16,163	)	$	(18,112	)	$	(28,038	)
State income taxes, net of federal income tax benefit	(363		)	(900		)	(1,170		)
Valuation allowance	13,271			19,557			28,600
Derivative liability	3,723			2			1,764
Other	329			287			(102		)
Total income tax expense	$	797		$	834		$	1,054

The major components of the Company’s overall net deferred tax asset of approximately $4 million at February 1, 2014 and February 2, 2013 respectively, were as follows:



	February 1, 2014			February 2, 2013
	(In thousands)
Current net deferred tax asset	$	3,715		$	5,238
Noncurrent net deferred tax asset	138,576			122,827
	142,291			128,065
Valuation allowance	(138,281		)	(123,920		)
Total net deferred tax asset	$	4,010		$	4,145
Deferred tax assets:
Net operating loss and tax credit carryforwards	$	126,213		$	113,264
Deferred lease incentives	5,414			6,047
Deferred rent	6,372			6,506
Deferred and stock-based compensation	4,912			4,516
Inventory cost capitalization	2,552			2,635
Other	3,384			4,931
	148,847			137,899
Deferred tax liabilities:
Depreciation and amortization	$	(2,920	)	$	(6,165	)
Prepaid expenses	(2,234		)	(2,219		)
State income taxes	(1,402		)	(1,450		)
	(6,556		)	(9,834		)
Net deferred taxes before valuation allowance	142,291			128,065
Less: valuation allowance	(138,281		)	(123,920		)
Total net deferred tax asset	$	4,010		$	4,145

In accordance with ASC 740, “Income Taxes” (“ASC 740”), and as a result of continued pre-tax operating losses, a full valuation allowance was established by the Company during the fourth quarter of 2009 and continues to be maintained on all federal and the majority of state and local jurisdiction net deferred tax assets. The Company has discontinued recognizing income tax benefits until it is determined that it is more likely than not that the Company will generate sufficient taxable income to realize the deferred income tax assets. As of the year ended February 1, 2014, the Company did not record a valuation allowance against various deferred tax assets related to separate filing jurisdictions of $4.0 million as the Company concluded it is more likely than not these deferred tax assets will be utilized before expiration. As of the year ended February 1, 2014, federal valuation allowances and state valuation allowances against deferred tax assets were $113.6 million and $24.7 million, respectively. The Company recorded the $14.4 million change in valuation allowance with a continuing operations valuation allowance provision of $13.3 million. The $1.1 million difference between the balance sheet change in valuation allowance and continuing operations valuation allowance provision relates to the discontinued operations valuation provision and the federal benefit of the state valuation allowance provision.

As of February 1, 2014, the Company had tax effected federal net operating losses (“NOLs”) of approximately $100.7 million available to offset future federal taxable income. In addition, as of February 1, 2014 the Company had tax effected state NOLs of approximately $20.6 million available to offset future state taxable income. Federal and state NOLs will expire at various times and in varying amounts in the Company's fiscal tax years 2014 through 2033. The Company also had federal and state credit carryforwards of approximately $0.4 million and $4.5 million, respectively. The Company’s federal and state carryforwards will begin to expire in 2029 and 2017, respectively.

The Company continues to monitor whether an ownership change has occurred under Internal Revenue Code Section 382 (“Section 382”). Based on available information at the reporting date, the Company believes it has not experienced an ownership change through the year ended February 1, 2014. The determination of whether or not an ownership change under Section 382 has occurred requires the Company to evaluate certain acquisitions and dispositions of ownership interests over a rolling three-year period. As a result, future acquisitions and dispositions could result in an ownership change of the Company under Section 382. If an ownership change were to occur, the Company’s ability to utilize federal net operating loss carryforwards could be significantly limited.

On September 13, 2013, the U.S. Treasury Department and the IRS issued final regulations that address costs incurred in acquiring, producing, or improving tangible property (the "tangible property regulations"). The tangible property regulations are generally effective for tax years beginning on or after January 1, 2014. The tangible property regulations will require the Company to make additional tax accounting method changes effective as of February 2, 2014; however, the Company does not anticipate the impact of these changes to be material to the Company’s consolidated financial position, its results of operations, or both.

As of February 2, 2013, unrecognized income tax benefits accounted for under ASC 740 totaled approximately $0.3 million. Of that amount, approximately $0.2 million represents unrecognized tax benefits that would, if recognized, favorably affect the Company’s effective income tax rate in any future periods. There were no material unrecognized income tax benefits as of February 1, 2014. The Company does not anticipate that total unrecognized tax benefits will change significantly in the next twelve months.

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits (including interest and penalties) at February 1, 2014, February 2, 2013, and January 28, 2012:



	February 1, 2014			February 2, 2013		January 28, 2012
	(In thousands)
Unrecognized tax benefits, opening balance	$	324		$	313	$	493
Gross increases — tax positions in prior period	—			11		271
Gross decreases — tax positions in prior period	(128		)	—		(30		)
Settlements	(185		)	—		(420		)
Lapse of statute of limitations	—			—		(1		)
Unrecognized tax benefits, ending balance	$	11		$	324	$	313

Estimated interest and penalties related to the underpayment of income taxes are included in income tax expense and totaled less than $0.1 million for fiscal 2013. Accrued interest and penalties were not material as of February 1, 2014 and February 2, 2013, respectively.

The Company files income tax returns in the U.S. federal jurisdiction and multiple other state and local jurisdictions. The Company is no longer subject to U.S. federal examinations for years prior to 2010 and, with few exceptions, is no longer subject to state and local examinations for years before 2009.