Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

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INCOME TAXES
 12 Months Ended
Jan. 28, 2012
INCOME TAXES [Abstract]  
INCOME TAXES [Text Block]
NOTE 3 - INCOME TAXES

Total income taxes were allocated as follows:

   
Year Ended
  
   
January 28,
    
January 29,
    
January 30,
  
   
2012
    
2011
    
2010
  
   (in millions)
                  
                   
Income from continuing operations
   $ 291.2     $ 232.6     $ 187.1  
Accumulated other comprehensive income (loss)
                        
  marking derivative financial instruments
                        
  to fair value
     (0.1 )     1.3       0.1  
Stockholders' equity, tax benefit on
                        
  exercises/vesting of equity-based
                        
  compensation
     (13.8 )     (7.8 )     (3.9 )
    $ 277.3     $ 226.1     $ 183.3  

The provision for income taxes consists of the following:
 
   
Year Ended
  
   
January 28,
    
January 29,
    
January 30,
  
(in millions)
  
2012
    
2011
    
2010
  
Federal - current
   $ 240.4     $ 215.7     $ 160.2  
State - current
     39.4       31.3       27.5  
Foreign - current
     0.3       -       -  
  Total current
     280.1       247.0       187.7  
                         
Federal - deferred
     14.9       (10.0 )     (0.4 )
State - deferred
     0.1       (4.4 )     (0.2 )
Foreign - deferred
     (3.9 )     -       -  
  Total deferred
     11.1       (14.4 )     (0.6 )
 
Included in current tax expense for the years ended January 28, 2012, January 29, 2011 and January 30, 2010, are amounts related to uncertain tax positions associated with temporary differences, in accordance with ASC 740.

A reconciliation of the statutory federal income tax rate and the effective rate follows:
 
   
Year Ended
  
   
January 28,
    
January 29,
    
January 30,
  
   
2012
    
2011
    
2010
  
                   
   Statutory tax rate
     35.0 %     35.0 %     35.0 %
     Effect of:
                        
       State and local income taxes,
                        
         net of federal income tax
                        
         benefit
     3.4       3.4       3.3  
       Other, net
     (1.0 )     (1.5 )     (1.4 )
   Effective tax rate
     37.4 %     36.9 %     36.9 %
 
The rate reduction in “other, net” consists primarily of benefits from the resolution of tax uncertainties, interest on tax reserves, federal jobs credits and tax-exempt interest offset by certain nondeductible expenses and foreign taxes.

United States income taxes have not been provided on accumulated but undistributed earnings of its foreign subsidiaries as the company intends to permanently reinvest earnings.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.  Deferred tax assets and liabilities are classified on the accompanying consolidated balance sheets based on the classification of the underlying asset or liability.  Significant components of the Company's net deferred tax assets (liabilities) follow:
 
   
January 28,
    
January 29,
  
   
2012
    
2011
  
(in millions)
            
Deferred tax assets:
            
  Deferred rent
   $ 31.5     $ 31.4  
  Accrued expenses
     31.4       25.4  
  Net operating losses and credit
                
    carryforwards
     9.1       6.4  
  Accrued compensation expense
     27.0       22.5  
  Other
     1.5       1.9  
    Total deferred tax assets
     100.5       87.6  
  Valuation allowance
     (3.5 )     (4.8 )
    Deferred tax assets, net
     97.0       82.8  
                 
Deferred tax liabilities:
                
  Property and equipment
     (34.0 )     (4.6 )
  Goodwill
     (15.1 )     (15.8 )
  Prepaid expenses
     (0.4 )     (3.8 )
  Inventory
     (4.5 )     (4.3 )
    Total deferred tax liabilities
     (54.0 )     (28.5 )
                 
Net deferred tax asset
   $ 43.0     $ 54.3  

A valuation allowance of $3.5 million, net of federal tax benefits, has been provided principally for certain state credit carryforwards and net operating loss carryforwards.  In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred taxes will not be realized.  Based upon the availability of carrybacks of future deductible amounts to the past two years’ taxable income and the Company's projections for future taxable income over the periods in which the deferred tax assets are deductible, the Company believes it is more likely than not the remaining existing deductible temporary differences will reverse during periods in which carrybacks are available or in which the Company generates net taxable income.

The company is participating in the Internal Revenue Service (“IRS”) Compliance Assurance Program (“CAP”) for the 2011 fiscal year and has applied to participate for fiscal year 2012.  This program accelerates the examination of key transactions with the goal of resolving any issues before the tax return is filed.  Our federal tax returns have been examined and all issues have been settled through our fiscal 2010 tax year.  In addition, several states completed their examination during the fiscal year.  In general, fiscal years 2008 and forward are within the statute of limitations for state tax purposes.  The statute of limitations is still open prior to 2008 for some states.

ASC 740 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in a tax return.  Under the guidelines of ASC 740, an entity should recognize a financial statement benefit for a tax position if it determines that it is more likely than not that the position will be sustained upon examination.

 The balance for unrecognized tax benefits at January 28, 2012, was $15.5 million.  The total amount of unrecognized tax benefits at January 28, 2012, that, if recognized, would affect the effective tax rate was $10.2 million (net of the federal tax benefit).  The following is a reconciliation of the Company’s total gross unrecognized tax benefits for the year ended January 28, 2012:
 
   
(in millions)
  
Balance at January 29, 2011
   $ 15.2  
  Additions, based on tax positions related to current year
     0.8  
  Additions for tax positions of prior years
     0.6  
  Reductions for tax positions of prior years
     -  
  Settlements
     -  
  Lapses in statutes of limitation
     (1.1 )
Balance at January 28, 2012
   $ 15.5  

During fiscal 2011, the Company accrued potential interest of $0.4 million, related to these unrecognized tax benefits.  No potential penalties were accrued during 2011 related to the unrecognized tax benefits.  As of January 28, 2012, the Company has recorded a liability for potential penalties and interest of $0.1 million and $4.1 million, respectively.

It is possible that state tax reserves will be reduced for audit settlements and statute expirations within the next 12 months.  At this point it is not possible to estimate a range associated with the resolution of these audits.