Income Taxes

9 Months Ended

Oct. 28, 2012

Income Taxes [Abstract]

Income Taxes

Note 4: Income Taxes

We use the asset/liability method for recording income taxes, which recognizes the amount of current and deferred taxes payable or refundable at the date of the financial statements as a result of all events that are recognized in the financial statements and as measured by the provisions of enacted tax laws. We also recognize liabilities for uncertain income tax positions for those items that meet the “more likely than not” threshold.

In assessing the realizability of deferred tax assets, at October 28, 2012 we considered whether it is more likely than not that some or all of the deferred tax assets will not be realized. Based on the level of recent historical taxable income; consistent generation of annual taxable income, and estimations of future taxable income we have concluded that it is more likely than not that we will realize the federal tax benefits associated with our deferred tax assets. Accordingly, we have reduced our previously established valuation allowance by $6,662. The valuation allowances previously established for deferred tax assets associated with state taxes, foreign taxes and uncertain tax positions remain unchanged from the end of fiscal year 2011. The ultimate realization of our deferred tax assets is dependent on the generation of future taxable income during periods in which temporary differences and carryforwards become deductible.

The calculation of tax liabilities involves significant judgment and evaluation of uncertainties in the interpretation of state tax regulations. As a result, we have established accruals for taxes that may become payable in future years due to audits by tax authorities. Tax accruals are reviewed regularly pursuant to accounting guidance for uncertainty in income taxes. Tax accruals are adjusted as events occur that affect the potential liability for taxes, such as the expiration of statutes of limitations, conclusion of tax audits, identification of additional exposure based on current calculations, identification of new issues, the issuance of statutory or administrative guidance, or rendering of a court decision affecting a particular issue. Accordingly, we may experience significant changes in tax accruals in the future, if or when such events occur.

As of October 28, 2012, we have accrued approximately $1,165 of unrecognized tax benefits and approximately $1,230 of penalties and interest. Future recognition of potential interest or penalties, if any, will be recorded as a component of income tax expense. Because of the impact of deferred income tax accounting, $1,044 of unrecognized tax benefits, if recognized, would affect the effective tax rate.

Subsequent to October 28, 2012, we reached an agreement with a taxing jurisdiction to settle an uncertain tax position of the Company. We anticipate that the settlement will result in an $992 reduction of our accrual for unrecognized taxes, penalties and interest.

The Company is a member of a consolidated group that includes D&B Entertainment. As of October 28, 2012, the Company owes D&B Entertainment approximately $2,502 of tax-related balances. The Company expects to utilize stand-alone net operating loss carry-forwards of approximately $1,750 to offset stand-alone taxable income for the current fiscal year. Additionally, we expect to utilize approximately $8,100 of available stand-alone tax credit carryforwards to offset our estimated stand-alone cash tax liability for the current fiscal year.