Income Taxes

The following table provides the components of the Company’s provision for income taxes for 2015, 2014 and 2013:



	2015			2014		2013
	(in millions)
Current:
U.S. Federal	$	553		$	454	$	407
U.S. State	96			69		90
Non-U.S.	21			21		28
Total	670			544		525
Deferred:
U.S. Federal	17			46		11
U.S. State	6			3		3
Non-U.S.	(12		)	1		4
Total	11			50		18
Provision for Income Taxes	$	681		$	594	$	543

The non-U.S. component of pre-tax income, arising principally from overseas operations, was income of $267 million, $152 million and $131 million for 2015, 2014 and 2013, respectively.

The Company's income taxes payable has been reduced by the excess tax benefits from employee stock plan awards. For stock options, the Company receives an excess income tax benefit calculated as the tax effect of the difference between the fair market value of the stock at the time of grant and exercise. For restricted stock, the Company receives an excess income tax benefit calculated as the tax effect of the difference between the fair market value of the stock at the time of grant and vesting. The Company had net excess tax benefits from equity awards of $70 million, $43 million and $36 million in 2015, 2014 and 2013, respectively, which were reflected as increases to equity.

The following table provides the reconciliation between the statutory federal income tax rate and the effective tax rate for 2015, 2014 and 2013:



	2015		2014		2013
Federal Income Tax Rate	35.0	%	35.0	%	35.0	%
State Income Taxes, Net of Federal Income Tax Effect	3.4	%	3.6	%	3.8	%
Impact of Non-U.S. Operations	(1.7	)%	(1.3	)%	(1.4	)%
Foreign Portion of the Divestiture of Third-party Apparel Sourcing Business	(0.9	)%	—	%	—	%
Other Items, Net	(0.6	)%	(1.0	)%	0.1	%
Effective Tax Rate	35.2	%	36.3	%	37.5	%

Deferred Taxes

The following table provides the effect of temporary differences that cause deferred income taxes as of January 30, 2016 and January 31, 2015. Deferred tax assets and liabilities represent the future effects on income taxes resulting from temporary differences and carryforwards at the end of the respective year.



	January 30, 2016									January 31, 2015
	Assets			Liabilities			Total			Assets			Liabilities			Total
	(in millions)
Leases	$	54		$	—		$	54		$	49		$	—		$	49
Non-qualified Retirement Plan	103			—			103			97			—			97
Property and Equipment	—			(330		)	(330		)	—			(283		)	(283		)
Goodwill	—			(15		)	(15		)	—			(15		)	(15		)
Trade Names and Other Intangibles	—			(141		)	(141		)	—			(139		)	(139		)
State Net Operating Loss Carryforwards	17			—			17			18			—			18
Non-U.S. Operating Loss Carryforwards	157			—			157			158			—			158
Valuation Allowance	(164		)	—			(164		)	(177		)	—			(177		)
Other, Net	92			—			92			80			—			80
Total Deferred Income Taxes	$	259		$	(486	)	$	(227	)	$	225		$	(437	)	$	(212	)

In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes. The impact of the adoption of this standard is a decrease in current deferred income tax assets on the Consolidated Balance Sheets of approximately $35 million as of January 30, 2016 and $33 million as of January 31, 2015; an increase in noncurrent deferred income tax assets of $8 million as of January 30, 2016 and January 31, 2015; and a decrease to noncurrent deferred income tax liabilities of $27 million as of January 30, 2016 and $25 million as of January 31, 2015. For additional information, see Note 2, "New Accounting Pronouncements."

As of January 30, 2016, the Company had available for state income tax purposes net operating loss carryforwards which expire, if unused, in the years 2016 through 2035. For those states where the Company has determined that it is more likely than not that the state net operating loss carryforwards will not be realized, a valuation allowance has been provided.

As of January 30, 2016, the Company had available for non-U.S. tax purposes net operating loss carryforwards which expire, if unused, in the years 2027 through 2035. For certain jurisdictions where the Company has determined that it is more likely than not that the net operating loss carryforwards will not be realized, a valuation allowance has been provided on those net operating loss carryforwards as well as other net deferred tax assets.

As of January 30, 2016, we have not provided deferred U.S. income taxes on approximately $454 million of undistributed earnings from non-U.S. subsidiaries. Any unrecognized deferred income tax liability resulting from these amounts is not expected to reverse in the foreseeable future; furthermore, the undistributed foreign earnings are permanently reinvested. If the Company elects to distribute these foreign earnings in the future, they could be subject to additional income taxes. Determination of the amount of any unrecognized deferred income tax liability is not practicable because such liability, if any, is dependent on circumstances existing if and when remittance occurs.

Income tax payments were $507 million for 2015, $526 million for 2014 and $468 million for 2013.

Uncertain Tax Positions

The following table summarizes the activity related to the Company’s unrecognized tax benefits for U.S. federal, state & non-U.S. tax jurisdictions for 2015, 2014 and 2013, without interest and penalties:



	2015			2014			2013
	(in millions)
Gross Unrecognized Tax Benefits, as of the Beginning of the Fiscal Year	$	193		$	167		$	185
Increases in Unrecognized Tax Benefits for Prior Years	8			16			39
Decreases in Unrecognized Tax Benefits for Prior Years	(3		)	(14		)	(54		)
Increases in Unrecognized Tax Benefits as a Result of Current Year Activity	54			36			37
Decreases to Unrecognized Tax Benefits Relating to Settlements with Taxing Authorities	—			(5		)	(34		)
Decreases to Unrecognized Tax Benefits as a Result of a Lapse of the Applicable Statute of Limitations	(4		)	(7		)	(6		)
Gross Unrecognized Tax Benefits, as of the End of the Fiscal Year	$	248		$	193		$	167

Of the $248 million, $193 million and $167 million of total unrecognized tax benefits at January 30, 2016, January 31, 2015, and February 1, 2014, respectively, approximately $217 million, $170 million and $143 million, respectively, represent the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in future periods. These amounts are net of the offsetting tax effects from other tax jurisdictions.

Of the total unrecognized tax benefits, it is reasonably possible that $178 million could change in the next 12 months due to audit settlements, expiration of statute of limitations or other resolution of uncertainties. Due to the uncertain and complex application of tax regulations, it is possible that the ultimate resolution of audits may result in amounts which could be different from this estimate. In such case, the Company will record additional tax expense or tax benefit in the period in which such matters are effectively settled.

The Company recognizes interest and penalties related to unrecognized tax benefits as components of income tax expense. The Company recognized interest and penalties expense of $7 million, $1 million and $4 million in 2015, 2014 and 2013, respectively. The Company has accrued approximately $38 million and $31 million for the payment of interest and penalties as of January 30, 2016 and January 31, 2015, respectively. Accrued interest and penalties are included within Other Long-term Liabilities on the Consolidated Balance Sheets.

The Company files U.S. federal income tax returns as well as income tax returns in various states and in non-U.S. jurisdictions. At the end of 2015, the Company was subject to examination by the IRS for 2012 through 2014. The Company is also subject to various U.S. state and local income tax examinations for the years 2009 to 2014. Finally, the Company is subject to multiple non-U.S. tax jurisdiction examinations for the years 2005 to 2014. In some situations, the Company determines that it does not have a filing requirement in a particular tax jurisdiction. Where no return has been filed, no statute of limitations applies. Accordingly, if a tax jurisdiction reaches a conclusion that a filing requirement does exist, additional years may be reviewed by the tax authority. The Company believes it has appropriately accounted for uncertainties related to this issue.