Taxes

3 Months Ended

May 01, 2011

Taxes

Taxes

Note 10: Taxes

The effective tax rate differs from the 35 percent statutory corporate tax rate in part due to the impact of lower foreign tax rates.

The gross unrecognized tax benefits (before federal impact of state items) were $17.0 million at May 1, 2011 and January 30, 2011. Included in the balances of unrecognized tax benefits at May 1, 2011 and January 30, 2011, are $14.7 million of net tax benefits (after federal impact of state items) that, if recognized, would impact the effective tax rate. The liability for uncertain tax positions was $14.7 million as of May 1, 2011 and January 30, 2011. This liability is reflected on the consolidated condensed balance sheets as "Accrued taxes." The Company's policy is to include net interest and penalties related to unrecognized tax benefits within the provision for taxes. The Company had approximately $293,000 of net interest and penalties accrued at May 1, 2011 and January 30, 2011.

In the first quarter of fiscal year 2012, the Internal Revenue Service initiated an examination of the Company's 2009 Federal tax return (fiscal year 2010). Tax years prior to 2007 (fiscal year 2008) are generally not subject to examination by the Internal Revenue Service except for items with tax attributes that could impact open tax years. For state returns, the Company is generally not subject to income tax examinations for years prior to 2006 (fiscal year 2007).

The Company's significant foreign tax presence is in Switzerland. The Company's material Swiss tax filings have been examined through fiscal year 2009. The Company is also subject to routine examinations by various foreign tax jurisdictions in which it operates.

As a global organization, the Company may be subject to a variety of transfer pricing or permanent establishment challenges by taxing authorities in various jurisdictions. In May 2011, the Company was informed that the taxation authorities in Korea were auditing the Company's branch activities in Korea for tax years 2006 through 2010. While no audit positions have been formally communicated to the Company at this time, the taxation authorities in Korea may take the position that the Company's Korean branch carried on business in Korea from a "permanent establishment" during the years in question and should therefore be taxed on the income attributable to the permanent establishment. The Company is of the view that no permanent establishment is at hand in Korea and no reserve for an uncertain tax position has been recorded for this matter.

As of May 1, 2011, it was reasonably possible that the total amounts of unrecognized tax benefits would decrease by up to $3.7 million within twelve months as a result of expiring statutes. If recognized, this decrease will impact the effective tax rate.