14.

Income Taxes

The components of income before income taxes from continuing operations were:


	For the Years Ended
*(In thousands)*	February 2, 2013		January 28, 2012		January 29, 2011
U.S.	$	381,131	$	256,352	$	280,699
Foreign		20,907		18,857		36,676

Total	$	402,038	$	275,209	$	317,375

The significant components of the Company’s deferred tax assets and liabilities were as follows:


*(In thousands)*	February 2, 2013			January 28, 2012
Deferred tax assets:
Deferred compensation	$	38,770		$	31,379
Rent		27,208			27,642
Employee compensation and benefits		18,738			6,345
Foreign tax credits		16,874			22,302
Capital loss carryforward		15,986			18,440
Inventories		8,575			11,734
State tax credits		5,770			6,105
Other		14,196			16,373

Gross deferred tax assets		146,117			140,320
Valuation allowance		(15,986	)		(18,440	)

Total deferred tax assets	$	130,131		$	121,880

Deferred tax liabilities:
Property and equipment	$	(35,130	)	$	(55,503	)
Prepaid expenses		(5,489	)		(4,149	)

Total deferred tax liabilities	$	(40,619	)	$	(59,652	)

Total deferred tax assets, net	$	89,512		$	62,228

Classification in the Consolidated Balance Sheet:
Current deferred tax assets	$	58,230		$	48,761
Noncurrent deferred tax assets		31,282			13,467

Total deferred tax assets	$	89,512		$	62,228

The net increase in deferred tax assets and liabilities was primarily due to an increase in the deferred tax assets for employee compensation and benefits and a decrease in the deferred income tax liability for property and equipment basis differences.

Significant components of the provision for income taxes from continuing operations were as follows:


	For the Years Ended
*(In thousands)*	February 2, 2013			January 28, 2012			January 29, 2011
Current:
Federal	$	143,612		$	76,389		$	96,438
Foreign taxes		6,939			6,621			13,429
State		18,845			12,801			10,665

Total current		169,396			95,811			120,532

Deferred:
Federal	$	(26,063	)	$	7,077		$	(213	)
Foreign taxes		(1,486	)		(1,120	)		(991	)
State		(3,907	)		(1,838	)		2,316

Total deferred		(31,456	)		4,119			1,112

Provision for income taxes	$	137,940		$	99,930		$	121,644

As a result of additional tax deductions related to share-based payments, tax benefits have been recognized as contributed capital for Fiscal 2012, Fiscal 2011 and Fiscal 2010 in the amounts of $14.1 million, $0.4 million and $15.6 million, respectively.

The Company plans to indefinitely reinvest the accumulated earnings since Fiscal 2009 of our Canadian subsidiaries outside of the United States. Accordingly, no provision for U.S. income taxes has been provided thereon. Upon distribution of the earnings in the form of dividends or otherwise, the Company would be subject to income and withholding taxes offset by foreign tax credits. As of February 2, 2013 and January 28, 2012, the unremitted earnings of our Canadian subsidiaries were approximately $88 million (USD) and $72 million (USD), respectively.

As of February 2, 2013, the gross amount of unrecognized tax benefits was $17.3 million, of which $11.3 million would affect the effective income tax rate if recognized. The gross amount of unrecognized tax benefits as of January 28, 2012 was $31.6 million, of which $22.8 million would affect the effective income tax rate if recognized.

The following table summarizes the activity related to our unrecognized tax benefits:


	For the Years Ended
*(In thousands)*	February 2, 2013			January 28, 2012			January 29, 2011
Unrecognized tax benefits, beginning of the year balance	$	31,578		$	31,108		$	31,649
Increases in tax positions of prior periods		—			932			1,069
Decreases in tax positions of prior periods		(10,385	)		(2,106	)		(3,801	)
Increases in current period tax positions		2,458			2,782			2,707
Settlements		(4,809	)		(1,073	)		(6	)
Lapse of statute of limitations		(1,592	)		(65	)		(510	)

Unrecognized tax benefits, end of the year balance	$	17,250		$	31,578		$	31,108

Unrecognized tax benefits decreased by $14.3 million during Fiscal 2012 and increased by $0.5 million during Fiscal 2011. The unrecognized tax benefit changes were primarily related to federal and state income tax settlements and other changes in income tax reserves. Over the next twelve months the Company does not anticipate any significant changes to unrecognized tax benefits.

The Company records accrued interest and penalties related to unrecognized tax benefits in income tax expense. Accrued interest and penalties related to unrecognized tax benefits included in the Consolidated Balance Sheet were $1.8 million and $7.9 million as of February 2, 2013 and January 28, 2012, respectively. During Fiscal 2012, the Company recognized a net benefit of $4.8 million in the provision for income taxes related to the reversal of accrued interest and penalties primarily due to federal and state income tax settlements. An immaterial amount of interest and penalties were recognized in the provision for income taxes during Fiscal 2011 and Fiscal 2010.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Internal Revenue Service (“IRS”) examination of the Company’s U.S. federal income tax returns for the tax year ended January 2010 was completed in December 2012. Accordingly, all years prior to January 2011 are no longer subject to U.S. federal income tax examinations by tax authorities. An IRS examination of the January 2012 federal income tax return began in February 2013. Additionally, the Company is participating in the IRS’s Compliance Assurance Process (CAP) for the year ended February 1, 2014. The Company does not anticipate that any adjustments will result in a material change to its financial position, results of operations or cash flow. With respect to state and local jurisdictions and countries outside of the United States, with limited exceptions, generally, the Company and its subsidiaries are no longer subject to income tax audits for tax years before 2006. Although the outcome of tax audits is always uncertain, the Company believes that adequate amounts of tax, interest and penalties have been provided for any adjustments that are expected to result from these years.

The Company has foreign tax credit carryovers in the amount of $16.9 million and $22.3 million as of February 2, 2013 and January 28, 2012, respectively. The foreign tax credit carryovers expire in Fiscal 2019 to the extent not utilized. No valuation allowance has been recorded on the foreign tax credit carryovers as the Company believes it is more likely than not the foreign tax credits will be utilized prior to expiration.

The Company has been certified to qualify for nonrefundable incentive tax credits in Kansas for expenditures related to the Ottawa, Kansas distribution center. As a result, the Company has a deferred tax asset related to Kansas income tax credit carryforwards of $5.7 million (net of federal income taxes) as of February 2, 2013 and $6.1 million (net of federal income taxes) as of January 28, 2012. These income tax credits can be utilized to offset future Kansas income taxes and have a carryforward period of 10-16 years. They will begin to expire in Fiscal 2018. Due to a favorable incentive agreement with the Kansas Department of Commerce in Fiscal 2010, the Company released a $5.0 million valuation allowance that had been previously recorded related to the Company’s Kansas income tax credit carryforward.

The Company has capital loss carryovers in the amount of $16.0 million and $18.4 million as of February 2, 2013 and January 28, 2012, respectively. These capital losses are subject to a three year carryback period and a five year carryforward period for tax purposes. The capital losses generally will expire in Fiscal 2014 and Fiscal 2015. Due to the contingencies related to the future use of these capital losses, we believe it is more likely than not that the full benefit of this asset will not be realized within the carryforward period. Thus, the Company has recorded a valuation allowance on the capital loss carryovers. Income tax benefits of $2.4 million and $2.0 million were recognized during Fiscal 2012 and Fiscal 2011, respectively, as a result of the reduction in the valuation allowance due to the receipt of proceeds related to the ARS Call Option.

A reconciliation between the statutory federal income tax rate and the effective income tax rate from continuing operations follows:


	For the Years Ended
	February 2, 2013			January 28, 2012			January 29, 2011
Federal income tax rate		35	%		35	%		35	%
State income taxes, net of federal income tax effect		3			3			3
Valuation allowance changes, net		(1	)		(1	)		1
Tax settlements		(3	)		(1	)		(1	)

		34	%		36	%		38	%