INCOME TAXES

The Company’s income before income taxes in the United States and in foreign jurisdictions is as follows:



(in thousands)	Fiscal 2014		Fiscal 2013		Fiscal 2012
Income before income taxes:
United States	$	114,772	$	117,318	$	65,131
Foreign	5,785		11,073		16,939
Total income before income taxes	$	120,557	$	128,391	$	82,070

The components of the provision for income taxes are as follows:



(in thousands)	Fiscal 2014		Fiscal 2013		Fiscal 2012
United States	$	44,503	$	46,272	$	27,645
Foreign	2,255		3,272		4,598
Total provision	$	46,758	$	49,544	$	32,243



(in thousands)	Fiscal 2014		Fiscal 2013			Fiscal 2012
Current:
Federal	$	20,902	$	46,355		$	18,892
State	6,361		5,631			5,678
Foreign	1,950		2,519			4,607
Total current	29,213		54,505			29,177
Deferred:
Federal	14,579		(4,238		)	3,725
State	2,661		(426		)	(650		)
Foreign	305		(297		)	(9		)
Total deferred	17,545		(4,961		)	3,066
Total provision	$	46,758	$	49,544		$	32,243

A reconciliation of the statutory federal income tax rate to the effective income tax rate is as follows:



	Fiscal 2014		Fiscal 2013		Fiscal 2012
Tax at statutory federal tax rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal tax benefit	2.9	%	2.6	%	4.0	%
Other, net	0.9	%	1.0	%	0.3	%
Total	38.8	%	38.6	%	39.3	%

Deferred tax assets and liabilities consisted of the following:



(in thousands)	January 30, 2015			January 31, 2014
Deferred tax assets:
Deferred revenue	$	7,894		$	4,144
Credit carryforwards	5,964			—
Product recall and other reserves	5,253			—
Deferred compensation	4,823			—
Reserve for returns	4,695			4,376
Benefit plans	—			1,734
Inventory	4,822			5,631
Property and equipment	153			1,233
Insurance reserves	827			945
Other	10,469			8,323
Total deferred tax assets	44,900			26,386
Deferred tax liabilities:
Intangible assets	197,786			197,680
LIFO reserve	19,864			17,924
Unremitted foreign earnings	4,782			4,178
Catalog marketing	3,474			3,280
Other	39			2,877
Total deferred tax liabilities	225,945			225,939
Net deferred tax liability	181,045			199,553
Less current deferred tax (asset) liability	(3,438		)	4,019
Long-term deferred tax liability	$	184,483		$	195,534

The Company has a deferred tax asset of approximately $6.0 million in foreign tax credits which are being carried forward and will expire in 2023.

A reconciliation of the beginning and ending amount of UTBs for the fiscal years is as follows:



	Federal, State and Foreign Tax
(in thousands)	Fiscal 2014		Fiscal 2013			Fiscal 2012
Gross UTB balance at beginning of period	$	8,718	$	8,507		$	8,209
Tax positions related to the current period—gross increases	364		252			298
Tax positions related to the prior periods—gross decreases	—		(41		)	—
Settlements	—		—			—
Lapse of statutes of limitations	—		—			—
Gross UTB balance at end of period	$	9,082	$	8,718		$	8,507

As of January 30, 2015, the Company had UTBs of $9.1 million. Of this amount, $5.9 million would, if recognized, impact its effective tax rate. The Company does not expect that UTBs will fluctuate in the next 12 months for tax audit settlements and the expiration of the statute of limitations for certain jurisdictions. Pursuant to the Tax Sharing Agreement, Sears Holdings Corporation is generally responsible for all United States federal, state and local UTBs through the date of the Separation and, as such, the UTBs are recorded in Other liabilities in the Consolidated and Combined Balance Sheets, and an indemnification asset from Sears Holdings Corporation for the $8.8 million pre-Separation UTBs is recorded in Other assets in the Consolidated and Combined Balance Sheets.

The Company classifies interest expense and penalties related to UTBs and interest income on tax overpayments as components of income tax expense. As of January 30, 2015, the total amount of interest expense and penalties recognized on the balance sheet was $5.5 million ($3.6 million net of federal benefit). As of January 31, 2014, the total amount of interest and penalties recognized on the balance sheet was $4.9 million ($3.2 million net of federal benefit). The total amount of net interest expense recognized in the Consolidated and Combined Statements of Comprehensive Operations was $0.4 million, $0.4 million and $0.8 million for Fiscal 2014, Fiscal 2013 and Fiscal 2012. Sears Holdings and Lands' End files income tax returns in both the United States and various foreign jurisdictions. The Internal Revenue Service has completed its examination of all federal income tax returns of Sears Holdings through the 2009 return, and all matters arising from such examinations have been resolved. Sears Holdings and the Company are under examination by various state income tax jurisdictions for the years 2002–2012.

Impacts of Separation

Prior to the Separation, the tax provision and related tax accounts represented the tax attributable to the Company as if the Company filed a separate tax return. However, the computed obligations were settled through Sears Holdings Corporation. Accordingly, the taxes payable and related tax payments were reflected directly in Net parent company investment in the Consolidated and Combined Balance Sheets.

As a result of the Separation, the Company will be filing its own income tax returns and, as a result certain tax attributes previously included in Net parent company investment have been reclassified. Specifically, subsequent to the Separation the Company reclassified (i) $30.4 million of deferred tax assets related primarily to foreign tax credits; and (ii) a $13.7 million reserve for uncertain tax positions (including penalties and interest) out of Net parent company investment and into Deferred tax liabilities and Other liabilities, respectively, in the Consolidated and Combined Balance Sheets. In addition, pursuant to the tax sharing agreement, a $13.7 million receivable was recorded by the Company to reflect the indemnification by Sears Holdings Corporation of the pre-Separation uncertain tax positions (including penalties and interest) for which Sears Holdings is responsible. This receivable has been included in Other assets in the Consolidated and Combined Balance Sheets.