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Income Taxes
 6 Months Ended
Jul. 28, 2012
Income Taxes  
Income Taxes

(6)           Income Taxes

 

Income tax expense for the interim periods was computed using the effective tax rate estimated to be applicable for the full fiscal year, along with the impact of any discrete items. The Company’s effective income tax rate decreased to 32.0% for the six months ended July 28, 2012 from 33.4% for the six months ended July 30, 2011. The effective income tax rate for the six months ended July 30, 2011, included the discrete impact of a $19.5 million settlement charge recorded in the second quarter of fiscal 2012. This unfavorably impacted the mix of taxable income among the Company’s tax jurisdictions, resulting in an increase in the effective income tax rate for the first six months of fiscal 2012 of 260 basis points.  This was partially offset by a larger estimated mix of taxable income in higher tax jurisdictions compared to the prior year.

 

From time to time, the Company is subject to routine income tax audits on various tax matters around the world in the ordinary course of business. As of July 28, 2012, several income tax audits were underway for various periods in multiple jurisdictions. The Company has received tax audit reports from the Italian tax authority regarding its ongoing audit of one of the Company’s Italian subsidiaries for the 2008 and 2009 fiscal years. While the tax authority has not made a formal tax assessment, based on the audit reports, the Company believes it is likely to receive a formal tax assessment from the tax authority for these two periods for roughly $11 million, though it is possible that the formal tax assessment will not be consistent with the audit reports. Further, similar or even larger assessments for periods subsequent to fiscal 2009 or other claims or charges related to the matter are possible. The Company disagrees with the positions that the Italian tax authority has indicated it may take and intends to vigorously contest this matter.

 

As required under applicable accounting rules, the Company accrues an amount for its estimate of additional income tax liability which the Company, more likely than not, could incur as a result of the ultimate resolution of the income tax audits (“uncertain tax positions”). The Company reviews and updates the accrual for uncertain tax positions as more definitive information becomes available from taxing authorities, upon completion of tax audits, upon expiration of statutes of limitation, or upon occurrence of other events. The Company does not believe that the resolution of open matters will have a material effect on the Company’s financial position or liquidity.

 

As of July 28, 2012 and January 28, 2012, the Company had $16.0 million and $16.7 million, respectively, of aggregate accruals for uncertain tax positions, including penalties and interest and net of federal tax benefits.  The change in the accrual balance from January 28, 2012 to July 28, 2012 resulted primarily from foreign currency translation.