Income Taxes

The components of earnings from continuing operations before income taxes is comprised of the following:



In thousands	2014		2013		2012
United States	$	152,832	$	152,457	$	139,174
Foreign	6,028		12,375		17,219
Total Earnings from Continuing Operations before Income Taxes	$	158,860	$	164,832	$	156,393

Income tax expense from continuing operations is comprised of the following:



In thousands	2014			2013			2012
Current
U.S. federal	$	35,463		$	50,859		$	42,103
International	7,293			9,853			2,226
State	8,139			8,841			8,952
Total Current Income Tax Expense	50,895			69,553			53,281
Deferred
U.S. federal	14,078			(7,924		)	5,579
International	(1,813		)	(6,379		)	4,370
State	2,718			(3,315		)	(288		)
Total Deferred Income Tax Expense (Benefit)	14,983			(17,618		)	9,661
Total Income Tax Expense – Continuing Operations	$	65,878		$	51,935		$	62,942

Discontinued operations were recorded net of income tax benefit of approximately $(0.2) million, $(0.3) million and $(0.7) million in Fiscal 2014, 2013 and 2012, respectively.

As a result of the exercise of stock options and vesting of restricted stock during Fiscal 2014, 2013 and 2012, the Company realized an additional income tax benefit of approximately $3.8 million, $4.8 million and $4.6 million, respectively. These tax benefits are reflected as an adjustment to additional paid-in capital.

Note 9

Income Taxes, Continued

Deferred tax assets and liabilities are comprised of the following:



	February 1,			February 2,
In thousands	2014			2013
Identified intangibles	$	(28,468	)	$	(28,076	)
Prepaids	(3,063		)	(2,943		)
Convertible bonds	(3,001		)	(3,001		)
Total deferred tax liabilities	(34,532		)	(34,020		)
Options	448			965
Deferred rent	4,986			5,847
Pensions	4,253			8,321
Expense accruals	15,673			16,766
Uniform capitalization costs	13,750			12,539
Book over tax depreciation	2,839			13,783
Provisions for discontinued operations and restructurings	4,731			4,745
Inventory valuation	2,115			2,015
Tax net operating loss and credit carryforwards	2,396			3,535
Allowances for bad debts and notes	761			1,598
Deferred compensation and restricted stock	6,606			6,382
Other	4,320			3,500
Gross deferred tax assets	62,878			79,996
Deferred tax asset valuation allowance	(3,771		)	(3,541		)
Deferred tax asset net of valuation allowance	59,107			76,455
Net Deferred Tax Assets	$	24,575		$	42,435

The deferred tax balances have been classified in the Consolidated Balance Sheets as follows:



	2014			2013
Net current asset	$	23,089		$	23,725
Net non-current asset	3,342			18,731
Net non-current liability	(1,856		)	(21		)
Net Deferred Tax Assets	$	24,575		$	42,435

Note 9

Income Taxes, Continued

Reconciliation of the United States federal statutory rate to the Company’s effective tax rate from continuing operations is as follows:



	2014		2013		2012
U. S. federal statutory rate of tax	35.00	%	35.00	%	35.00	%
State taxes (net of federal tax benefit)	4.62		3.11		3.62
Foreign rate differential	(1.24	)	(1.98	)	(1.71	)
Change in valuation allowance	0.05		(0.17	)	0.60
Permanent items	2.18		1.85		2.27
Uncertain federal, state and foreign tax positions	0.21		(5.73	)	—
Other	0.65		(0.57	)	0.47
Effective Tax Rate	41.47	%	31.51	%	40.25	%

The provision for income taxes resulted in an effective tax rate for continuing operations of 41.47% for Fiscal 2014, compared with an effective tax rate of 31.51% for Fiscal 2013. The tax rate for Fiscal 2013 was lower primarily due to the reversal of previously recorded charges related to uncertain tax positions due to the expiration of the applicable statutes of limitations and a settlement with a state tax authority more favorable than anticipated related to other uncertain tax positions.

As of February 1, 2014, February 2, 2013 and January 28, 2012, the Company had a federal net operating loss carryforward, which was assumed in one of the prior year acquisitions, of $1.3 million, $1.5 million and $1.6 million, respectively, which expire in fiscal years 2025 through 2030.

As of February 1, 2014, February 2, 2013 and January 28, 2012, the Company had state net operating loss carryforwards of $0.0 million, $0.1 million and $0.1 million, respectively, which expire in fiscal years 2016 through 2031.

As of February 1, 2014, February 2, 2013 and January 28, 2012, the Company had state tax credits of $0.7 million, $0.9 million and $0.6 million, respectively. These credits expire in fiscal years 2014 through 2019.

As of February 1, 2014, February 2, 2013 and January 28, 2012, the Company had foreign tax credits of $0.0 million, $0.0 million and $0.1 million, respectively. These credits will expire in fiscal year 2022.

As of February 1, 2014, February 2, 2013 and January 28, 2012, the Company had foreign net operating losses of $7.5 million, $10.4 million and $28.8 million, respectively, which have no expiration.

As of February 1, 2014, as part of the Schuh acquisition, the Company has provided a valuation allowance of approximately $3.8 million on deferred tax assets associated primarily with foreign net operating losses and foreign fixed assets for which management has determined it is more likely than

Note 9

Income Taxes, Continued

not that the deferred tax assets will not be realized. The $0.3 million net increase in the valuation allowance during Fiscal 2014 from the $3.5 million provided for as of February 2, 2013 determined in

accordance with the Income Tax Topic of the Codification relates to foreign net operating losses arising in Fiscal 2012 and increases in fixed asset-related deferred tax assets that will more likely than not

never be realized. Management believes that it is more likely than not that the remaining deferred tax assets will be fully realized.

As of February 1, 2014, the Company has not provided for withholding or United States federal income taxes on approximately $26.4 million of accumulated undistributed earnings of its foreign subsidiaries as they are considered by management to be permanently reinvested. If these undistributed earnings were not considered to be permanently reinvested, the related U.S. tax liability may be reduced by foreign income taxes paid on those earnings. Because of the complexities involved with the hypothetical tax calculation, a determination of the unrecognized deferred tax liability related to these undistributed earnings is not practicable.

The methodology in the Income Tax Topic of the Codification prescribes that a company should use a more-likely-than-not recognition threshold based on the technical merits of the tax position taken. Tax positions that meet the more-likely-than-not recognition threshold should be measured in order to determine the tax benefit to be recognized in the financial statements.

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits for Fiscal 2014, 2013 and 2012.



In thousands	2014			2013			2012
Unrecognized Tax Benefit – Beginning of Period	$	10,437		$	20,467		$	14,167
Gross Increases (Decreases) – Tax Positions in a Prior Period	139			(2,464		)	(29		)
Gross Increases – Tax Positions in a Current Period	1,452			133			6,986
Settlements	(340		)	(449		)	(533		)
Lapse of Statutes of Limitations	(728		)	(7,250		)	(124		)
Unrecognized Tax Benefit – End of Period	$	10,960		$	10,437		$	20,467

The amount of unrecognized tax benefits as of February 1, 2014, February 2, 2013 and January 28, 2012, which would impact the annual effective rate if recognized were $1.3 million, $2.4 million and $12.6 million, respectively. The Company believes it is reasonably possible that there will be a $0.1 million decrease in the gross tax liability for uncertain tax positions within the next 12 months based upon the expiration of statutes of limitation.

The Company recognizes interest expense and penalties related to the above unrecognized tax benefits within income tax expense on the Consolidated Statements of Operations. Related to the uncertain tax benefits noted above, the Company recorded interest and penalties of approximately $(0.1) million

Note 9

Income Taxes, Continued

expense and $(0.1) million, respectively, during Fiscal 2014, $(1.2) million expense and $0.1 million, respectively, during Fiscal 2013 and $0.5 million expense and $0.0 million, respectively, during Fiscal 2012. The Company recognized a liability for accrued interest and penalties of $0.9 million and $0.1 million, respectively, as of February 1, 2014, $1.1 million and $0.2 million, respectively, as of February 2, 2013 and $2.3 million and $0.2 million, respectively, as of January 28, 2012. The long-term portion of the unrecognized tax benefits and related accrued interest and penalties are included in deferred rent and other long-term liabilities on the Consolidated Balance Sheets.

Income tax reserves are determined using the methodology required by the Income Tax Topic of the Codification.

The Company and its subsidiaries file income tax returns in federal and in many state and local jurisdictions as well as foreign jurisdictions. With few exceptions, the Company's U.S. federal and state and local income tax returns for fiscal years ended January 29, 2011 and beyond remain subject to examination. In addition, the Company has subsidiaries in various foreign jurisdictions that have statutes of limitation generally ranging from two to six years.