INCOME TAXES

9 Months Ended

Oct. 27, 2012

INCOME TAXES

INCOME TAXES

NOTE 8—INCOME TAXES

The Company recognizes taxes payable for the current year, as well as deferred tax assets and liabilities for the future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. The Company’s effective income tax rate differs from the U.S. statutory rate principally due to deferred tax adjustments related to foreign tax credits generated in the Company’s Puerto Rico operations, state taxes, and other certain permanent tax items. The changes in the rate for the thirteen weeks ended October 27, 2012 as compared to the thirteen weeks ended October 29, 2011 are primarily driven by a reduction in ordinary income or loss in relation to foreign taxes in the Company’s Puerto Rico operations, state taxes, and other certain permanent tax items. The Company must assess the likelihood that any recorded deferred tax assets will be recovered against future taxable income. To the extent the Company believes it is more likely than not that the asset will not be recoverable, a valuation allowance must be established. All available evidence, both positive and negative, is considered to determine whether based on the weight of that evidence a valuation allowance is needed. To establish this positive evidence, the Company considers future projections of income and various tax planning strategies for generating income sufficient to utilize the deferred tax assets. During the thirty-nine weeks ended October 29, 2011, due to an organizational restructuring of its subsidiaries and the Company’s improved profitability and projected future income, the Company released $3.6 million (net of federal tax) of valuation allowance relating to state net operating loss carryforwards and credits.

For income tax benefits related to uncertain tax positions to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement.  During the thirteen and thirty-nine weeks ended October 27, 2012, the Company did not have a material change to its uncertain tax position liabilities.