14. Income Taxes

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

	For the Years Ended
	January 30,		January 31,			February 1,
(In thousands)	2016		2015			2014
U.S.	$	289,697	$	193,167		$	157,669
Foreign		32,174		(33,665	)		(15,592	)
Total	$	321,871	$	159,502		$	142,077

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

	January 30,			January 31,
(In thousands)	2016			2015
Deferred tax assets:
Rent	$	27,281		$	28,323
Employee compensation and benefits		23,840			9,609
Deferred compensation		21,187			16,109
Foreign tax credits		20,567			15,546
Accruals not currently deductible		10,907			15,213
Inventories		9,659			6,939
State tax credits		6,902			7,595
Net operating loss		6,891			9,179
Other		12,745			11,476
Gross deferred tax assets		139,979			119,989
Valuation allowance		(7,720	)		(10,563	)
Total deferred tax assets	$	132,259		$	109,426

Deferred tax liabilities:
Property and equipment	$	(59,386	)	$	(28,285	)
Other		(7,946	)		(8,004	)
Total deferred tax liabilities	$	(67,332	)	$	(36,289	)

Total deferred tax assets, net	$	64,927		$	73,137

The net decrease in deferred tax assets and liabilities was primarily due to an increase in the deferred tax assets for compensation and benefits offset by an increase in the deferred tax liability for property and equipment basis differences. Additionally, there was a decrease to the valuation allowance related to foreign deferred tax assets.

As of January 30, 2016, the Company had deferred tax assets related to state and foreign net operating loss carryovers of $1.7 million and $5.2 million, respectively that could be utilized to reduce future years’ tax liabilities. 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 a portion of the state and foreign net operating loss carryovers will not reduce future years’ tax liabilities in certain jurisdictions. As such a valuation allowance of $5.0 million has been recorded on the deferred tax assets related to the cumulative state and foreign net operating loss carryovers. We also provided for a valuation allowance of approximately $2.7 million related to other foreign deferred tax assets.

The Company has foreign tax credit carryovers in the amount of $20.6 million and $19.3 million as of January 30, 2016 and January 31, 2015, respectively. The foreign tax credit carryovers begin to expire in Fiscal 2020 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 $6.9 million (net of federal tax) and $7.6 million (net of federal tax) as of January 30, 2016 and January 31, 2015, 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 2022.

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

	For the Years Ended
	January 30,			January 31,			February 1,
(In thousands)	2016			2015			2014
Current:
Federal	$	86,122		$	66,229		$	29,794
Foreign taxes		3,836			(792	)		(50	)
State		13,032			9,447			9,162
Total current		102,990			74,884			38,906
Deferred:
Federal	$	5,606		$	(1,178	)	$	20,611
Foreign taxes		(1,977	)		(85	)		695
State		1,961			(2,906	)		(1,118	)
Total deferred		5,590			(4,169	)		20,188
Provision for income taxes	$	108,580		$	70,715		$	59,094

As a result of additional tax deductions related to share-based payments, tax benefits have been recognized as contributed capital for Fiscal 2015, Fiscal 2014 and Fiscal 2013 in the amounts of $(0.5) million, $(0.5) million and $8.7 million, respectively.

U.S. income taxes have not been provided on the undistributed earnings of the Company’s foreign subsidiaries, as the Company intends to indefinitely reinvest the undistributed foreign earnings outside of the United States. As of January 30, 2016, the unremitted earnings of the Company’s foreign subsidiaries were approximately $23.4 million (USD). 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. Determination of the amount of unrecognized deferred U.S. income tax liability on these unremitted earnings is not practicable because of the complexities associated with this hypothetical calculation.

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

	For the Years Ended
(In thousands)	January 30, 2016			January 31, 2015			February 1, 2014
Unrecognized tax benefits, beginning of the year balance	$	12,609		$	14,601		$	17,250
Increases in current period tax positions		2,727			2,166			2,294
Increases in tax positions of prior periods		—			—			440
Settlements		—			(73	)		—
Lapse of statute of limitations		(516	)		(471	)		(453	)
Decreases in tax positions of prior periods		(9,072	)		(3,614	)		(4,930	)
Unrecognized tax benefits, end of the year balance	$	5,748		$	12,609		$	14,601

As of January 30, 2016, the gross amount of unrecognized tax benefits was $5.7 million, of which $4.6 million would affect the effective income tax rate if recognized. The gross amount of unrecognized tax benefits as of January 31, 2015 was $12.6 million, of which $9.1 million would affect the effective income tax rate if recognized.

Unrecognized tax benefits decreased by $6.9 million during Fiscal 2015, decreased $2.0 million during Fiscal 2014 and decreased by $2.6 million during Fiscal 2013. 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 $2.8 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 $1.3 million and $1.6 million as of January 30, 2016 and January 31, 2015, respectively. An immaterial amount of interest and penalties were recognized in the provision for income taxes during Fiscal 2015, 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 February 1, 2014 was completed during Fiscal 2015. Accordingly, all years prior to the tax year ended January 31, 2015 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 tax years ended January 31, 2015 and January 30, 2016. The Company does not anticipate that any adjustments will result in a material change to its financial position, results of operations or cash flows. 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 2009. 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.

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

	For the Years Ended
	January 30,			January 31,			February 1,
	2016			2015			2014
Federal income tax rate		35	%		35	%		35	%
State income taxes, net of federal income tax effect		3			4			4
Valuation allowance changes, net		(1	)		6			4
Tax settlements		(1	)		(1	)		(2	)
Other		(2	)		—			1
		34	%		44	%		42	%