6.	INCOME TAXES

The components of earnings before income taxes from continuing operations consisted of domestic earnings (loss) before income taxes from continuing operations of $40.9 million, $23.8 million and ($15.5) million in 2013, 2012, and 2011, respectively, and foreign earnings before income taxes from continuing operations of $36.8 million, $28.0 million, and $20.2 million in 2013, 2012, and 2011, respectively. In addition to the income tax expense associated with continuing operations, we also recorded income tax (benefit) expense associated with net (loss) earnings from discontinued operations of ($5.9) million, ($5.3) million, and $9.7 million in 2013, 2012, and 2011, respectively.

The components of income tax provision (benefit) on earnings from continuing operations were as follows:



($ thousands)	2013		2012		2011
Federal
Current	$	14,621	$	2,803	$	(4,006)
Deferred		260		5,803		319
		14,881		8,606		(3,687)
State
Current		5,770		1,560		(857)
Deferred		(1,210)		1,899		137
		4,560		3,459		(720)
Foreign		4,317		4,591		2,986
Total income tax provision (benefit)	$	23,758	$	16,656	$	(1,421)

The Company made federal, state, and foreign tax payments, net of refunds, of $5.0 million and $5.7 million in 2013 and 2012, respectively. The Company received federal, state, and foreign tax refunds, net of payments, of $5.7 million in 2011.

The differences between the tax provision (benefit) reflected in the consolidated financial statements and the amounts calculated at the federal statutory income tax rate of 35% were as follows:



($ thousands)	2013		2012		2011
Income taxes at statutory rate	$	27,208	$	18,139	$	1,635
State income taxes, net of federal tax benefit		2,964		2,248		(468)
Foreign earnings taxed at lower rates		(8,090)		(5,206)		(4,090)
Non-deductibility of impairment of assets held for sale		1,631		–		–
Other		45		1,475		1,502
Total income tax provision (benefit)	$	23,758	$	16,656	$	(1,421)

The other category of income tax provision (benefit) principally represents the impact of expenses that are not deductible or partially deductible for federal income tax purposes and adjustments in the amounts of deferred tax assets that are anticipated to be realized.

Significant components of the Company’s deferred income tax assets and liabilities were as follows:



($ thousands)	February 1, 2014		February 2, 2013
Deferred Tax Assets
Employee benefits, compensation and insurance	$	15,264	$	12,877
Accrued expenses		17,235		17,772
Postretirement and postemployment benefit plans		746		1,753
Deferred rent		6,255		349
Accounts receivable reserves		7,052		7,018
Net operating loss (“NOL”) carryforward/carryback		14,917		28,381
Capital loss carryforward		5,145		–
Foreign tax credit carryforward		4,236		5,767
Other tax credit carryforward		3,591		–
Inventory capitalization and inventory reserves		5,317		2,265
Intangible assets		6,924		–
Other		4,923		5,699
Total deferred tax assets, before valuation allowance		91,605		81,881
Valuation allowance		(13,949)		(8,014)
Total deferred tax assets, net of valuation allowance		77,656		73,867
Deferred Tax Liabilities
Retirement plans		(29,608)		(16,496)
LIFO inventory valuation		(51,460)		(42,914)
Capitalized software		(15,729)		(18,433)
Other		(1,966)		(1,909)
Depreciation		(2,212)		(1,298)
Intangible assets		–		(1,684)
Total deferred tax liabilities		(100,975)		(82,734)
Net deferred tax liability	$	(23,319)	$	(8,867)

As of February 1, 2014, the Company had a net operating loss carryforward with a tax value of $1.8 million related to Shoes.com, which expires in 2019, and various state net operating loss carryforwards with tax values totaling $11.4 million. A valuation allowance of $6.3 million has been established related to these operating loss carryforwards. The remaining net operating loss will be carried forward to future tax years. The Company also has valuation allowances of $5.1 million related to capital loss carryforwards, $0.7 million related to share-based compensation, $0.6 million related to foreign tax credits and $1.2 million related to charitable contributions and other carryforwards.

As of February 1, 2014, no deferred taxes have been provided on the accumulated unremitted earnings of the Company’s foreign subsidiaries that are not subject to United States income tax. The Company periodically evaluates its foreign investment opportunities and plans, as well as its foreign working capital needs, to determine the level of investment required and, accordingly, determine the level of foreign earnings that is considered indefinitely reinvested. Based upon that evaluation, earnings of the Company’s foreign subsidiaries that are not otherwise subject to United States taxation, except for the Company’s Canadian subsidiary, are considered to be indefinitely reinvested, and accordingly, deferred taxes have not been provided. If changes occur in future investment opportunities and plans, those changes will be reflected when known and may result in providing residual United States deferred taxes on unremitted foreign earnings. If the Company’s unremitted foreign earnings were not considered indefinitely reinvested as of February 1, 2014, additional deferred taxes of approximately $30.8 million would have been provided.

Uncertain Tax Positions

ASC 740, Income Taxes, establishes a single model to address accounting for uncertain tax positions. The standard clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. The standard also provides guidance on derecognition, measurement classification, interest and penalties, accounting in interim periods, disclosure, and transition.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



($ thousands)
Balance at January 29, 2011	$	752
Settlements		(206)
Reductions for tax positions of prior years due to a lapse in the statute of limitations		(337)
Balance at January 28, 2012	$	209
Additions for tax positions of prior years		1,015
Reductions for tax positions of prior years due to a lapse in the statute of limitations		(75)
Balance at February 2, 2013	$	1,149
Reductions for tax positions of prior years due to a lapse in the statute of limitations		(134)
Balance at February 1, 2014	$	1,015

If the unrecognized tax benefits were to be recognized in full, the net amount that would be reflected in the income tax provision, thereby impacting the effective tax rate, would be $1.1 million at February 1, 2014, $0.8 million at February 2, 2013, and $0.2 million at January 28, 2012.

Estimated interest related to the underpayment of income taxes was classified as a component of the income tax (provision) benefit in the consolidated statements of earnings and was insignificant in 2013, 2012, and 2011. Accrued interest was $0.1 million at February 1, 2014 and February 2, 2013.

For federal purposes, the Company’s tax years 2010 to 2012 (fiscal years ending January 29, 2011, January 28, 2012, and February 2, 2013) remain open to examination. The Company also files tax returns in various foreign jurisdictions and numerous states for which various tax years are subject to examination. The Company does not expect any significant changes to its liability for unrecognized tax benefits during the next 12 months.