Income taxes

12 Months Ended

Feb. 03, 2012

Income taxes

Income taxes

5. Income taxes

        The provision (benefit) for income taxes consists of the following:

(In thousands)	2011		2010		2009
Current:
Federal	$	385,277	$	273,005	$	173,027
Foreign		1,449		1,269		1,465
State		56,272		28,062		21,002
		442,998		302,336		195,494
Deferred:
Federal		8,313		42,024		12,412
Foreign		—		—		(49	)
State		7,293		12,755		4,817
		15,606		54,779		17,180
	$	458,604	$	357,115	$	212,674

        A reconciliation between actual income taxes and amounts computed by applying the federal statutory rate to income before income taxes is summarized as follows:

(Dollars in thousands)	2011					2010					2009
U.S. federal statutory rate on earnings before income taxes	$	428,851		35.0	%	$	344,740		35.0	%	$	193,241		35.0	%
State income taxes, net of federal income tax benefit		42,774		3.5			26,877		2.7			18,375		3.3
Jobs credits, net of federal income taxes		(15,153	)	(1.2	)		(8,845	)	(0.9	)		(8,590	)	(1.6	)
Increase (decrease) in valuation allowances		(2,202	)	(0.2	)		(1,003	)	(0.1	)		(1,722	)	(0.3	)
Income tax related interest expense (benefit), net of federal income taxes		(121	)	—			(5,004	)	(0.5	)		1,289		0.2
Nondeductible lawsuit settlement		—		—			—		—			(366	)	(0.1	)
Other, net		4,455		0.3			350		0.1			10,447		2.0
	$	458,604		37.4	%	$	357,115		36.3	%	$	212,674		38.5	%

        The 2011 effective tax rate was an expense of 37.4%. This expense was greater than the expected tax rate of 35% due primarily to the inclusion of state income taxes in the total effective tax rate. The 2011 effective rate was greater than the 2010 rate of 36.3% primarily due to the effective resolution of various examinations by the taxing authorities in 2010 that did not reoccur, to the same extent, in 2011. These factors resulted in rate increases in 2011, as compared to 2010, associated with state income taxes and income tax related interest expense. Increases in federal jobs related tax credits, primarily due to the Hire Act's Retention Credit, reduced the effective rate in 2011 as compared to 2010. The Retention Credit applies only to 2011. Other provisions authorizing various federal jobs credits that the Company receives have generally expired for employees hired after December 31, 2011.

        The 2010 effective tax rate was an expense of 36.3%. This expense was greater than the expected tax rate of 35% due primarily to the inclusion of state income taxes in the total effective tax rate. The 2010 effective rate was less than the 2009 rate of 38.5% due principally to reductions in state income tax expense, income tax related interest expense and other expense items. The 2010 effective resolution of various examinations by the taxing authorities, when combined with unfavorable examination results in 2009, resulted in a decrease in the year-to-year state income tax expense rate (net of federal income tax expense) of approximately 1.8%. This decrease in state income tax expense was partially offset by an increase in state income tax expense due to a shift in income to companies within the group that have a higher effective state income tax rate. In addition, income tax related interest accruals and income tax related penalty accruals (with the penalty accruals being included in Other, net) were also reduced due to favorable income tax examination results, thereby resulting in a decrease in income tax related interest expense and a decrease in Other income tax expense. Additional decreases in Other, net items occurred due to favorable outcomes in 2010 associated with the completion of a federal income tax examination and reductions in expense associated with uncertain tax benefit accruals.

        The 2009 effective tax rate was an expense of 38.5%. This expense was greater than the expected tax rate of 35% due primarily to the inclusion of state income taxes in the total effective tax rate.

        Deferred taxes reflect the effects of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows:

(In thousands)	February 3, 2012			January 28, 2011
Deferred tax assets:
Deferred compensation expense	$	7,851		$	6,653
Accrued expenses and other		6,735			4,798
Accrued rent		11,125			8,581
Accrued insurance		70,180			67,634
Accrued bonuses		16,686			20,116
Interest rate hedges		4,479			13,650
Tax benefit of income tax and interest reserves related to uncertain tax positions		2,690			2,520
Other		16,010			16,321
State tax net operating loss carryforwards, net of federal tax		33			4,697
State tax credit carryforwards, net of federal tax		10,628			12,511
		146,417			157,481
Less valuation allowances		(4,881	)		(7,083	)
Total deferred tax assets		141,536			150,398
Deferred tax liabilities:
Property and equipment		(287,447	)		(222,757	)
Inventories		(49,345	)		(68,314	)
Trademarks		(435,611	)		(435,543	)
Amortizable assets		(13,234	)		(21,288	)
Insurance related tax method change		—			(14,844	)
Bonus related tax method change		(13,078	)		(19,520	)
Other		(3,539	)		(3,551	)
Total deferred tax liabilities		(802,254	)		(785,817	)
Net deferred tax liabilities	$	(660,718	)	$	(635,419	)

        Net deferred tax liabilities are reflected separately on the consolidated balance sheets as current and noncurrent deferred income taxes. The following table summarizes net deferred tax liabilities as recorded in the consolidated balance sheets:

(In thousands)	February 3, 2012			January 28, 2011
Current deferred income tax liabilities, net	$	(3,722	)	$	(36,854	)
Noncurrent deferred income tax liabilities, net		(656,996	)		(598,565	)
Net deferred tax liabilities	$	(660,718	)	$	(635,419	)

        The Company has state net operating loss carryforwards as of February 3, 2012 that total approximately $54.3 million which will expire in 2023 through 2031. The Company also has state tax credit carryforwards of approximately $16.4 million that will expire beginning in 2020 through 2025.

        The valuation allowance has been provided for state tax credit carryforwards and federal capital losses. The 2011, 2010, and 2009 decreases of $2.2 million, $1.0 million and $1.7 million, respectively, were recorded as a reduction in income tax expense. Based upon expected future income, management believes that it is more likely than not that the results of operations will generate sufficient taxable income to realize the deferred tax assets after giving consideration to the valuation allowance.

        The Internal Revenue Service ("IRS") is examining the Company's federal income tax returns for fiscal years 2006, 2007 and 2008. The 2005 and earlier years are not open for examination. The 2009, 2010, and 2011 fiscal years, while not currently under examination, are subject to examination at the discretion of the IRS. The Company has various state income tax examinations that are currently in progress. Generally, the Company's tax years ended in 2008 and forward remain open for examination by the various state taxing authorities.

        As of February 3, 2012, accruals for uncertain tax benefits, interest expense related to income taxes and potential income tax penalties were $42.0 million, $1.2 million and $0.6 million, respectively, for a total of $43.8 million. Of this amount, $0.3 million and $41.1 million are reflected in current liabilities as Accrued expenses and other and in noncurrent Other liabilities, respectively, in the consolidated balance sheet with the remaining $2.4 million reducing deferred tax assets related to net operating loss carry forwards.

        As of January 28, 2011, accruals for uncertain tax benefits, interest expense related to income taxes and potential income tax penalties were $26.4 million, $1.9 million and $0.5 million, respectively, for a total of $28.8 million. Of this amount, $0.2 million and $27.3 million are reflected in current liabilities as Accrued expenses and other and in noncurrent Other liabilities, respectively, in the consolidated balance sheet with the remaining $1.3 million reducing deferred tax assets related to net operating loss carry forwards.

        The Company believes that it is reasonably possible that the reserve for uncertain tax positions may be reduced by approximately $30.4 million in the coming twelve months principally as a result of the settlement of currently ongoing income tax examinations. The reasonably possible change of $30.4 million is included in current liabilities in Accrued expenses and other ($0.2 million) and in noncurrent Other liabilities ($30.2 million) in the consolidated balance sheet as of February 3, 2012. Also, as of February 3, 2012, approximately $42.0 million of the uncertain tax positions would impact the Company's effective income tax rate if the Company were to recognize the tax benefit for these positions.

        The amounts associated with uncertain tax positions included in income tax expense consists of the following:

(In thousands)	2011		2010			2009
Income tax expense (benefit)	$	97	$	(12,000	)	$	11,900
Income tax related interest expense (benefit)		968		(5,800	)		2,300
Income tax related penalty expense (benefit)		63		(700	)		400

        A reconciliation of the uncertain income tax positions from January 30, 2009 through February 3, 2012 is as follows:

(In thousands)	2011			2010			2009
Beginning balance	$	26,429		$	67,636		$	59,057
Increases—tax positions taken in the current year		125			125			13,701
Increases—tax positions taken in prior years		15,840			—			4,039
Decreases—tax positions taken in prior years		—			(36,973	)		(1,111	)
Statute expirations		(376	)		(1,570	)		—
Settlements		—			(2,789	)		(8,050	)
Ending balance	$	42,018		$	26,429		$	67,636