9. INCOME TAXES

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


	Fiscal Year Ended
	February 2, 2013		January 28, 2012			January 29, 2011
	(In thousands)
Current income taxes:
Federal	$	—	$	(127	)	$	268
State		825		1,516			1,692

Total current		825		1,389			1,960
Deferred income taxes:
Federal		—		—			—
State		23		(357	)		(896	)

Total deferred		23		(357	)		(896	)

Total income tax expense	$	848	$	1,032		$	1,064

Included in fiscal 2012, 2011 and 2010 current income taxes, were tax benefits from uncertain tax positions of approximately $0 million, $0.2 million and $0.3 million, respectively.

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
	February 2, 2013			January 28, 2012			January 29, 2011
	(In thousands)
Benefit for income taxes at statutory rate	$	(17,979	)	$	(28,380	)	$	(27,208	)
State income taxes, net of federal income tax benefit		(881	)		(1,209	)		(1,387	)
Valuation allowance		19,415			28,958			29,745
Derivative liability		2			1,764			—
Other		291			(101	)		(86	)

Total income tax expense	$	848		$	1,032		$	1,064

The major components of the Company’s overall net deferred tax asset of approximately $4 million and $5 million at February 2, 2013 and January 28, 2012, respectively, were as follows:


	February 2, 2013			January 28, 2012
	(In thousands)
Current net deferred tax asset	$	5,238		$	3,782
Noncurrent net deferred tax asset		122,827			104,629

		128,065			108,411
Valuation allowance		(123,920	)		(103,777	)

Total net deferred tax asset	$	4,145		$	4,634

Deferred tax assets:
Net operating loss and tax credit carryforwards	$	113,264		$	97,206
Deferred lease incentives		6,047			7,395
Deferred rent		6,506			6,442
Deferred and stock-based compensation		4,516			3,795
Inventory cost capitalization		2,635			2,536
Sublease loss reserves		—			114
Other		4,931			3,470

		137,899			120,958
Deferred tax liabilities:
Depreciation and amortization	$	(6,165	)	$	(8,762	)
Prepaid expenses		(2,219	)		(2,164	)
State income taxes		(1,450	)		(1,621	)

		(9,834	)		(12,547	)

Net deferred taxes before valuation allowance		128,065			108,411
Less: valuation allowance		(123,920	)		(103,777	)

Total net deferred tax asset	$	4,145		$	4,634

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 2, 2013, the Company did not record a valuation allowance against various deferred tax assets related to separate filing jurisdictions of $4.1 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 2, 2013, federal valuation allowances and state valuation allowances against deferred tax assets were $100.6 million and $23.3 million, respectively. The Company recorded the $20.1 million change in valuation allowance with a continuing operations valuation allowance provision of $19.4 million. The $0.7 million difference between the balance sheet change in valuation allowance and continuing operations valuation allowance provision relates to the discontinued operations valuation benefit and the federal benefit of the state valuation allowance provision.

As of February 2, 2013, the Company had tax effected federal net operating losses (“NOLs”) of approximately $88.8 million available to offset future federal taxable income. In addition, as of February 2, 2013 the Company had tax effected state NOLs of approximately $19.9 million available to offset future state taxable income. Federal and state NOLs will expire at various times and in varying amounts in our fiscal tax years 2013 through 2030. The Company also had federal and Kansas credit carryforwards of approximately $0.4 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 February 2, 2013. 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.

As of February 2, 2013 and January 28, 2012, unrecognized income tax benefits accounted for under ASC 740 totaled approximately $0.3 million at each date. Of those amounts at each date, approximately $0.2 million 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 February 2, 2013, January 28, 2012, and January 29, 2011:


	February 2, 2013		January 28, 2012			January 29, 2011
	(In thousands)
Unrecognized tax benefits, opening balance	$	313	$	493		$	839
Gross increases — tax positions in prior period		11		271			489
Gross decreases — tax positions in prior period		—		(30	)		(644	)
Gross increases — tax positions in current period		—		—			—
Settlements		—		(420	)		(120	)
Lapse of statute of limitations		—		(1	)		(71	)

Unrecognized tax benefits, ending balance	$	324	$	313		$	493

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 2012. Accrued interest and penalties were not material as of February 2, 2013 and January 28, 2012, 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 our 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. In fiscal 2012, the Company resolved this issue with the Internal Revenue Service resulting in no tax due.