Income Taxes

The components of earnings from continuing operations before income taxes is comprised of the following:



In thousands	2015		2014		2013
United States	$	150,682	$	152,832	$	152,457
Foreign	6,307		6,028		12,375
Total Earnings from Continuing Operations before Income Taxes	$	156,989	$	158,860	$	164,832

Income tax expense from continuing operations is comprised of the following:



In thousands	2015		2014			2013
Current
U.S. federal	$	43,146	$	35,463		$	50,859
International	292		7,293			9,853
State	8,966		8,139			8,841
Total Current Income Tax Expense	52,404		50,895			69,553
Deferred
U.S. federal	4,422		14,078			(7,924		)
International	636		(1,813		)	(6,379		)
State	154		2,718			(3,315		)
Total Deferred Income Tax Expense (Benefit)	5,212		14,983			(17,618		)
Total Income Tax Expense – Continuing Operations	$	57,616	$	65,878		$	51,935

Discontinued operations were recorded net of income tax expense (benefit) of approximately $(1.1) million, $(0.2) million and $(0.3) million in Fiscal 2015, 2014 and 2013, respectively.

As a result of the exercise of stock options and vesting of restricted stock during Fiscal 2015, 2014 and 2013, the Company realized an additional income tax benefit of approximately $3.1 million, $3.8 million and $4.8 million, respectively. These tax benefits are reflected as an adjustment to additional paid-in capital.

Note 9

Income Taxes, Continued

Deferred tax assets and liabilities are comprised of the following:



	January 31,			February 1,
In thousands	2015			2014
Identified intangibles	$	(30,923	)	$	(28,468	)
Prepaids	(3,135		)	(3,063		)
Convertible bonds	(2,402		)	(3,001		)
Tax over book depreciation	(2,028		)	—
Total deferred tax liabilities	(38,488		)	(34,532		)
Options	229			448
Deferred rent	4,494			4,986
Pensions	9,721			4,253
Expense accruals	14,185			15,673
Uniform capitalization costs	14,369			13,750
Book over tax depreciation	—			2,839
Provisions for discontinued operations and restructurings	5,983			4,731
Inventory valuation	3,816			2,115
Tax net operating loss and credit carryforwards	2,030			2,396
Allowances for bad debts and notes	711			761
Deferred compensation and restricted stock	6,933			6,606
Other	4,853			4,320
Gross deferred tax assets	67,324			62,878
Deferred tax asset valuation allowance	(4,411		)	(3,771		)
Deferred tax asset net of valuation allowance	62,913			59,107
Net Deferred Tax Assets	$	24,425		$	24,575

The deferred tax balances have been classified in the Consolidated Balance Sheets as follows:



	2015			2014
Net current asset	$	28,293		$	23,089
Net non-current asset	31			3,342
Net non-current liability	(3,899		)	(1,856		)
Net Deferred Tax Assets	$	24,425		$	24,575

Note 9

Income Taxes, Continued

Reconciliation of the United States federal statutory rate to the Company’s effective tax rate from continuing operations is as follows:



	2015		2014		2013
U. S. federal statutory rate of tax	35.00	%	35.00	%	35.00	%
State taxes (net of federal tax benefit)	3.80		4.62		3.11
Foreign rate differential	(1.56	)	(1.24	)	(1.98	)
Change in valuation allowance	0.57		0.05		(0.17	)
Permanent items	2.13		2.18		1.85
Uncertain federal, state and foreign tax positions	(3.06	)	0.21		(5.73	)
Other	(0.18	)	0.65		(0.57	)
Effective Tax Rate	36.70	%	41.47	%	31.51	%

The provision for income taxes resulted in an effective tax rate for continuing operations of 36.70% for Fiscal 2015, compared with an effective tax rate of 41.47% for Fiscal 2014. The tax rate for Fiscal 2015 was lower primarily due to the reversal of previously recorded charges related to formerly uncertain tax positions that were taken by Schuh at the time of the purchase by the Company which the Company resolved favorably during the third quarter of Fiscal 2015.

As of January 31, 2015, February 1, 2014 and February 2, 2013, the Company had a federal net operating loss carryforward, which was assumed in one of the prior year acquisitions, of $1.2 million, $1.3 million and $1.5 million, respectively, which expire in fiscal years 2025 through 2030.

As of January 31, 2015, February 1, 2014 and February 2, 2013, the Company had state net operating loss carryforwards of $0.0 million, $0.0 million and $0.1 million, respectively, which expire in fiscal years 2016 through 2031.

As of January 31, 2015, February 1, 2014 and February 2, 2013, the Company had state tax credits of $0.4 million, $0.7 million and $0.9 million, respectively. These credits expire in fiscal years 2015 through 2019.

As of January 31, 2015, February 1, 2014 and February 2, 2013, the Company had foreign net operating losses of $6.8 million, $7.5 million and $10.4 million, respectively, which have no expiration.

As of January 31, 2015, the Company has provided a valuation allowance of approximately $4.4 million on deferred tax assets associated primarily with foreign net operating losses and foreign fixed assets for which management has determined it is more likely than not that the deferred tax assets will not be realized. The $0.6 million net increase in the valuation allowance during Fiscal 2015 from the $3.8 million provided for as of February 1, 2014 determined in accordance with the Income Tax Topic of the Codification relates to increases in fixed asset-related deferred tax assets that will more likely than not never be realized. Management believes that it is more likely than not that the remaining deferred tax assets will be fully realized.

Note 9

Income Taxes, Continued

As of January 31, 2015, the Company has not provided for withholding or United States federal income taxes on approximately $34.2 million of accumulated undistributed earnings of its foreign subsidiaries as they are considered by management to be permanently reinvested. If these undistributed earnings were not considered to be permanently reinvested, the related U.S. tax liability may be reduced by foreign income taxes paid on those earnings. The determination of the amount of unrecognized deferred tax liability related to these temporary differences is not practicable at this time as this could be significantly impacted by the source location and amount of the distribution, the underlying tax rate already paid on the earnings, foreign withholding taxes and the opportunity to use foreign tax credits.

The methodology in the Income Tax Topic of the Codification prescribes that a company should use a more-likely-than-not recognition threshold based on the technical merits of the tax position taken. Tax positions that meet the more-likely-than-not recognition threshold should be measured in order to determine the tax benefit to be recognized in the financial statements.

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits for Fiscal 2015, 2014 and 2013.



In thousands	2015			2014			2013
Unrecognized Tax Benefit – Beginning of Period	$	10,960		$	10,437		$	20,467
Gross Increases (Decreases) – Tax Positions in a Prior Period	231			139			(2,464		)
Gross Increases (Decreases) – Tax Positions in a Current Period	(287		)	1,452			133
Settlements	—			(340		)	(449		)
Lapse of Statutes of Limitations	(6,907		)	(728		)	(7,250		)
Unrecognized Tax Benefit – End of Period	$	3,997		$	10,960		$	10,437

The amount of unrecognized tax benefits as of January 31, 2015, February 1, 2014 and February 2, 2013 which would impact the annual effective rate if recognized were $1.3 million, $1.3 million and $2.4 million, respectively. The Company believes it is reasonably possible that there will be a $0.1 million decrease in the gross tax liability for uncertain tax positions within the next 12 months based upon the expiration of statutes of limitation.

The Company recognizes interest expense and penalties related to the above unrecognized tax benefits within income tax expense on the Consolidated Statements of Operations. Related to the uncertain tax benefits noted above, the Company recorded interest and penalties of approximately $(0.1) million

benefit and $0.0 million, respectively, during Fiscal 2015, $(0.1) million and $(0.1) million benefit, respectively, during Fiscal 2014 and $(1.2) million benefit and $0.1 million expense, respectively, during Fiscal 2013. The Company recognized a liability for accrued interest and penalties of $0.8 million and $0.1 million, respectively, as of January 31, 2015, $0.9 million and $0.1 million, respectively, as of February 1, 2014 and $1.1 million and $0.2 million, respectively, as of February 2, 2013. The long-term portion of the unrecognized tax benefits and related accrued interest and penalties are included in deferred rent and other long-term liabilities on the Consolidated Balance Sheets.

Note 9

Income Taxes, Continued

Income tax reserves are determined using the methodology required by the Income Tax Topic of the Codification.

The Company and its subsidiaries file income tax returns in federal and in many state and local jurisdictions as well as foreign jurisdictions. With few exceptions, the Company's U.S. federal and state and local income tax returns for fiscal years ended January 28, 2012 and beyond remain subject to examination. In addition, the Company has subsidiaries in various foreign jurisdictions that have statutes of limitation generally ranging from two to six years.