14.

Income Taxes

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


	For the Years Ended
*(In thousands)*	January 31, 2015			February 1, 2014			February 2, 2013
U.S.	$	193,167		$	157,669		$	381,131
Foreign		(33,665	)		(15,592	)		20,907

Total	$	159,502		$	142,077		$	402,038

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


*(In thousands)*	January 31, 2015			February 1, 2014
Deferred tax assets:
Rent	$	28,323		$	27,458
Deferred compensation		16,109			22,654
Foreign tax credits		15,546			13,436
Accruals not currently deductible		9,899			9,059
Employee compensation and benefits		9,609			2,799
Net Operating Loss		9,179			4,226
State tax credits		7,595			6,215
Inventories		6,939			11,234
Deferred Revenue		5,150			124
Foreign and state income taxes		3,774			3,255
Loyalty Reserve		2,908			3,196
Capital loss carryforward		—			16,207
Other		3,871			844

Gross deferred tax assets		118,902			120,707
Valuation allowance		(10,563	)		(20,601	)

Total deferred tax assets	$	108,339		$	100,106

Deferred tax liabilities:
Property and equipment	$	(30,054	)	$	(23,595	)
Prepaid expenses		(3,227	)		(4,544	)
Other		(1,921	)		(1,654	)

Total deferred tax liabilities	$	(35,202	)	$	(29,793	)

Total deferred tax assets, net	$	73,137		$	70,313

Classification in the Consolidated Balance Sheet:
Current deferred tax assets	$	59,102		$	45,478
Noncurrent deferred tax assets		14,035			24,835

Total deferred tax assets	$	73,137		$	70,313

The net decrease in deferred tax assets and liabilities was primarily due to an increase in the deferred 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)*	January 31, 2015			February 1, 2014			February 2, 2013
Current:
Federal	$	66,229		$	29,794		$	143,612
Foreign taxes		(792	)		(50	)		6,939
State		9,447			9,162			18,845

Total current		74,884			38,906			169,396

Deferred:
Federal	$	(1,178	)	$	20,611		$	(26,063	)
Foreign taxes		(85	)		695			(1,486	)
State		(2,906	)		(1,118	)		(3,907	)

Total deferred		(4,169	)		20,188			(31,456	)

Provision for income taxes	$	70,715		$	59,094		$	137,940

At February 1, 2014, the Company had a valuation allowance of $16.2 million related to capital loss carryforwards. During the fiscal year ended January 31, 2015, the Company utilized all of its capital loss carryforwards and released the $16.2 million valuation allowance associated with the capital loss carryforward.

As a result of additional tax deductions related to share-based payments, tax benefits have been recognized as contributed capital for Fiscal 2014, Fiscal 2013 and Fiscal 2012 in the amounts of ($0.5 million), $8.7 million and $14.1 million, respectively.

The Company repatriated the earnings of its Canadian subsidiaries as of January 31, 2015. Upon distribution of the earnings, the Company was subject to income and withholding taxes offset by U.S. foreign tax credits resulting in no material impact on tax expense. It is Management’s position to indefinitely reinvest accumulated earnings of our Canadian subsidiaries outside of the United States to the extent not repatriated in Fiscal 2014.

As of January 31, 2015, the Company had state and foreign net operating loss carryovers that could be utilized to reduce future years’ tax liabilities, totaling $10.3 million. A portion of these net operating loss carryovers begin expiring in the year 2018 and some have an indefinite carryforward period. Management believes it is more likely than not that the foreign net operating loss carryovers will not reduce future years’ tax liabilities in certain foreign jurisdictions. As such a valuation allowance of $7.2 million has been recorded on the deferred tax assets related to the cumulative foreign net operating loss carryovers.

As of January 31, 2015, the gross amount of unrecognized tax benefits was $12.6 million, of which $9.1 million would affect the effective income tax rate if recognized. The gross amount of unrecognized tax benefits as of February 1, 2014 was $14.6 million, of which $9.7 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)*	January 31, 2015			February 1, 2014			February 2, 2013
Unrecognized tax benefits, beginning of the year balance	$	14,601		$	17,250		$	31,578
Increases in current period tax positions		2,166			2,294			2,458
Increases in tax positions of prior periods		—			440			—
Settlements		(73	)		—			(4,809	)
Lapse of statute of limitations		(471	)		(453	)		(1,592	)
Decreases in tax positions of prior periods		(3,614	)		(4,930	)		(10,385	)

Unrecognized tax benefits, end of the year balance	$	12,609		$	14,601		$	17,250

Unrecognized tax benefits decreased by $2.0 million during Fiscal 2014, decreased $2.6 million during Fiscal 2013 and decreased by $14.3 million during Fiscal 2012. 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 believes it is reasonably possible the unrecognized tax benefits could decrease by as much as $5.6 million as the result of federal and state tax settlements, statute of limitations lapses, and other changes to the reserves.

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 $1.6 million and $1.9 million as of January 31, 2015 and February 1, 2014, 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 2014 and Fiscal 2013.

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 return for the tax year ended January 2012 was completed in February 2014. Accordingly, all years prior to the tax year ended January 2013 are no longer subject to U.S. federal income tax examinations by tax authorities. Additionally, the Company is participating in the IRS’s Compliance Assurance Process (CAP) for the years ended February 1, 2014 and January 31, 2015. 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 2008. 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 $19.3 million and $13.4 million as of January 31, 2015 and February 1, 2014, respectively. The foreign tax credit carryovers begin to 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 that the foreign tax credits will be utilized prior to expiration.

The Company has state income tax credit carryforwards of $11.7 million and $10.7 million as of January 31, 2015 and February 1, 2014, respectively. These income tax credits can be utilized to offset future state income taxes and have a carryforward period of 10 to16 years. They will begin to expire in Fiscal 2018.

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


	For the Years Ended
	January 31, 2015			February 1, 2014			February 2, 2013
Federal income tax rate		35	%		35	%		35	%
State income taxes, net of federal income tax effect		4			4			3
Valuation allowance changes, net		6			4			(1	)
Tax settlements		(1	)		(2	)		(3	)
Other		—			1			—

		44	%		42	%		34	%