Income Taxes

3 Months Ended

May 04, 2013

Income Taxes [Abstract]

Income Taxes

10. Income Taxes

The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. The Company is no longer subject to U.S. federal income tax examinations by tax authorities for fiscal years prior to fiscal 2011. With respect to state and local jurisdictions, with limited exceptions, the Company and its subsidiaries are no longer subject to income tax audits for fiscal years prior to fiscal 2009.

As of May 4, 2013, the gross amount of unrecognized tax benefits due to uncertain tax positions was $0.9 million, all of which would affect the effective tax rate if recognized. The amount of unrecognized tax benefits, including interest and penalties, that would no longer need to be accrued due to the passage of various statutes of limitations in the next 12 months is $0.3 million. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. The Company had approximately $0.4 million in interest and penalties related to unrecognized tax benefits accrued as of both May 4, 2013 and February 2, 2013. The Company’s total liability for unrecognized tax benefits, including interest and penalties, as of May 4, 2013 and February 2, 2013, was $0.9 million.

The methodology for calculation of income tax rates in interim periods is described in ASC 740-270. In general, ASC 740-270 requires an entity to compute the interim income tax rate based on an estimate of the annual effective tax rate. In interim periods where the entity is experiencing losses, an entity must make assumptions concerning its future taxable income and determine whether the realization of future tax benefits is more likely than not. Per ASC 740-270-25-3, the Company computed the effective tax rate as a discrete interim rate due to the inability to estimate a part of its ordinary income (or loss) or the related tax (or benefit) but was otherwise able to make a reliable estimate. Deferred tax assets are presented net of the deferred tax liabilities on the condensed consolidated balance sheet. The Company’s condensed consolidated balance sheet as of May 4, 2013 includes a gross deferred tax asset of $30.1 million related to a carryforward for state net operating losses. One of the companies in the consolidated group has incurred a cumulative loss in recent years. The majority of the net operating loss carryforward is a result of the net operating losses incurred during the fiscal year ended February 2, 2013 due principally to difficult market and macroeconomic conditions. The Company evaluates the realizability of its deferred tax assets on a quarterly basis. The Company has concluded, based on the weight of all available positive and negative evidence, that all but $1.2 million of these tax benefits relating to certain state losses are more likely than not to be realized in the future. Therefore, a valuation allowance of $1.2 million has been established. The Company will continue to assess the amount of the valuation allowance in the future.