Income Taxes

12 Months Ended

Jan. 28, 2012

Income Taxes [Abstract]

INCOME TAXES

9.  INCOME TAXES

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

	Fiscal Year Ended
	January 28, 2012			January 29, 2011			January 30, 2010
	(In thousands)
Current income taxes:
Federal	$	(127	)	$	271		$	(28,665	)
State		1,303			1,588			824
Total current		1,176			1,859			(27,841	)
Deferred income taxes:
Federal		—			—			10,566
State		(370	)		(942	)		6,176
Total deferred		(370	)		(942	)		16,742
Total income tax expense (benefit)	$	806		$	917		$	(11,099	)

Included in fiscal 2011, 2010 and 2009 current income taxes, were tax benefits of approximately $0.2 million, $0.3 million and $0.4 million, respectively, relating to uncertain tax positions.

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

	Fiscal Year Ended
	January 28, 2012			January 29, 2011			January 30, 2010
	(In thousands)
Benefit for income taxes at statutory rate	$	(31,436	)	$	(29,198	)	$	(19,859	)
State income taxes, net of federal income tax benefit		(1,566	)		(1,622	)		(1,226	)
Valuation allowance		32,139			31,814			10,492
Derivative liability		1,764			—			—
Other		(95	)		(77	)		(506	)
Total income tax expense (benefit)	$	806		$	917		$	(11,099	)

The major components of the Company’s overall net deferred tax asset of approximately $5 million and $4 million at January 28, 2012 and January 29, 2011, respectively, were as follows:

	January 28, 2012			January 29, 2011
	(In thousands)
Current net deferred tax asset	$	3,782		$	3,669
Noncurrent net deferred tax asset		104,629			65,077
		108,411			68,746
Valuation allowance		(103,777	)		(64,435	)
Total net deferred tax asset	$	4,634		$	4,311
Deferred tax assets:
Net operating loss and tax credit carryforwards	$	97,206		$	59,574
Deferred lease incentives		7,395			11,950
Deferred rent		6,442			7,378
Deferred and stock-based compensation		3,795			3,006
Inventory cost capitalization		2,536			2,638
Sublease loss reserves		114			240
Other		3,470			3,724
		120,958			88,510
Deferred tax liabilities:
Depreciation and amortization	$	(8,762	)	$	(15,715	)
Prepaid expenses		(2,164	)		(2,541	)
State income taxes		(1,621	)		(1,508	)
		(12,547	)		(19,764	)
Net deferred taxes before valuation allowance		108,411			68,746
Less: valuation allowance		(103,777	)		(64,435	)
Total net deferred tax asset	$	4,634		$	4,311

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 January 28, 2012, the Company did not record a valuation allowance against various deferred tax assets related to separate filing jurisdictions of $4.6 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 January 28, 2012, federal valuation allowances and state valuation allowances against deferred tax assets were $82.6 million and $21.2 million, respectively. The fiscal 2011 $39.3 million change in total valuation allowance primarily relates to maintaining a full valuation allowance against the total increase in federal and certain state and local jurisdiction net deferred tax assets during the year. The Company recorded the $39.3 million change in valuation allowance with a continuing operations valuation allowance provision of $32.1 million. The $7.2 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 January 28, 2012, the Company had tax effected federal net operating losses (“NOLs”) of approximately $74.4 million available to offset future federal taxable income. In addition, as of January 28, 2012 the Company had tax effected state NOLs of approximately $18.3 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 2012 through 2030. The Company also had federal and Kansas credit carryforwards of approximately $0.3 million and $4.2 million, respectively. The Company’s federal and Kansas 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 January 28, 2012. 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 severely limited.

As of January 28, 2012 and January 29, 2011, unrecognized income tax benefits accounted for under ASC 740 totaled approximately $0.3 million and $0.5 million, respectively. Of those amounts, approximately $0.2 million and $0.1 million, respectively, represent unrecognized tax benefits that would, if recognized, favorably affect the Company’s effective income tax rate in any future periods. 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 January 28, 2012, January 29, 2011, and January 30, 2010:

	January 28,			January 29,			January 30,
	2012			2011			2010
	(In thousands)
Unrecognized tax benefits, opening balance	$	493		$	839		$	1,199
Gross increases — tax positions in prior period		271			489			44
Gross decreases — tax positions in prior period		(30	)		(644	)		(270	)
Gross increases — tax positions in current period		—			—			—
Settlements		(420	)		(120	)		—
Lapse of statute of limitations		(1	)		(71	)		(134	)
Unrecognized tax benefits, ending balance	$	313		$	493		$	839

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 2011. Accrued interest and penalties were not material as of January 28, 2012 and January 29, 2011, 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 2006 and, with few exceptions, is no longer subject to state and local examinations for years before 2007. In fiscal 2011, an examination of the Company’s income tax returns for the 2007 and 2008 tax years was completed by the Internal Revenue Service resulting in a proposed tax adjustment of $4.5 million for such years. The Company has filed a protest denying any adjustment and asserting various defenses. From time to time, the Company may make provisions for probable tax losses relating to the protest. Depending on the actual outcome, charges in excess of any provisions could be recorded in the future, which may have an adverse effect on the Company’s operating results.