Income Taxes

The provision for income taxes for the fiscal years ended January 31, 2015, February 1, 2014 and February 2, 2013 consists of the following:



	Fiscal Year Ended
	January 31, 2015			February 1, 2014			February 2, 2013
	(in thousands)
Federal:
Current	$	35,414		$	57,631		$	30,404
Deferred	(627		)	(321		)	24,276
Total federal	34,787			57,310			54,680
State and local:
Current	5,031			12,654			5,174
Deferred	1,519			(1,075		)	5,421
Total state and local	6,550			11,579			10,595
Foreign:
Current	352			(99		)	702
Deferred	946			(1,257		)	(909		)
Total foreign	1,298			(1,356		)	(207		)
Total	$	42,635		$	67,533		$	65,068

10. Income Taxes (Continued)

The reconciliation between the provision for income taxes and the expected provision for income taxes at the U.S. federal statutory rate of 35% for the fiscal years ended January 31, 2015, February 1, 2014 and February 2, 2013 is as follows:



	Fiscal Year Ended
	January 31, 2015			February 1, 2014			February 2, 2013
	(dollars in thousands)
U.S. operations	$	113,899		$	173,287		$	170,896
Foreign operations	(3,284		)	(3,324		)	(3,243		)
Income before income taxes	110,615			169,963			167,653
Federal statutory rate	35		%	35		%	35		%
Provision for income taxes at federal statutory rate	38,715			59,487			58,679
State and local income taxes, net of federal income tax benefit	4,132			6,962			6,886
Non-deductible expenses	1,408			2,068			2,341
Settlements of tax examinations	—			—			(4,113		)
Current and prior year tax credits	(2,330		)	—			—
Foreign	300			(507		)	909
Other	410			(477		)	366
Provision for income taxes	$	42,635		$	67,533		$	65,068

The income tax provision reflects the current and deferred tax consequences of events that have been recognized in the Company’s Consolidated Financial Statements or tax returns. U.S. federal income taxes are provided on unremitted foreign earnings, except those that are considered indefinitely reinvested, which at January 31, 2015 amounted to approximately $1.6 million. However, if these earnings were not considered indefinitely reinvested, under current law the incremental tax on such undistributed earnings would be approximately $0.3 million. The Company considers the earnings of certain non-U.S. subsidiaries to be indefinitely reinvested outside the U.S. and its current plans do not demonstrate a need to repatriate them to fund its U.S. operations. During Fiscal 2014, the Company undertook a study to avail itself of certain federal tax credits and recorded a $2.3 million benefit related to those tax credits for the current period and prior open periods in its Fiscal 2014 provision for income taxes.

The tax effects of significant items comprising the Company’s deferred tax assets/(liabilities) as of January 31, 2015 and February 1, 2014 are as follows:



	As of
	January 31, 2015			February 1, 2014
	(in thousands)
Current:
Inventory	$	6,187		$	8,619
Accrued expenses and other	14,887			14,104
Deferred rent and lease incentives	4,972			6,131
Total gross deferred tax assets - current	26,046			28,854
Non-current:
Depreciation and amortization	(74,541		)	(95,171		)
Deferred rent and lease incentives	52,340			65,256
Benefits related	20,618			21,339
Other	12,539			14,175
Amounts included in accumulated other comprehensive loss	2,241			964
Total gross deferred tax assets - non-current	13,197			6,563
Less: valuation allowance	1,078			—
Total net deferred tax assets - non-current	$	12,119		$	6,563

10. Income Taxes (Continued)

During the fiscal year ended January 31, 2015, the Company established a valuation allowance of approximately $1.1 million related to certain non-U.S. deferred tax assets that, in the judgment of management, were not more likely than not to be realized prior to expiration. The realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences are deductible. In assessing the realizability of deferred tax assets, management considered whether it is more likely than not that some or all of the deferred tax assets will not be realized. Management considered the scheduled reversal of deferred tax liabilities, projected taxable income and prudent and feasible tax planning strategies in making this assessment.

At January 31, 2015 and February 1, 2014, the Company had approximately $11.7 million and $10.1 million, respectively, of domestic and foreign net operating loss carryforwards, which will expire in 2029 through 2034. In addition, the Company had approximately $0.1 million of alternative minimum tax credits in non-U.S. jurisdictions at February 1, 2014, which were recognized in its Provision for income taxes in Fiscal 2014.

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



	(in thousands)
Balance at January 28, 2012	$	7,797
Additions based on tax positions related to the current year	383
Additions for tax positions of prior years	396
Reductions for tax positions of prior years	(148		)
Settlements	(4,579		)
Lapses in statutes of limitation	(51		)
Balance at February 2, 2013	3,798
Additions based on tax positions related to the current year	639
Additions for tax positions of prior years	1,102
Reductions for tax positions of prior years	(70		)
Settlements	(17		)
Lapses in statutes of limitation	(79		)
Balance at February 1, 2014	5,373
Additions based on tax positions related to the current year	649
Additions for tax positions of prior years	1,167
Reductions for tax positions of prior years	(916		)
Settlements	(11		)
Lapses in statutes of limitation	(688		)
Balance at January 31, 2015	$	5,574

To the extent these unrecognized tax benefits are ultimately recognized, approximately $4.7 million will impact the Company’s effective tax rate in a future period. The Company anticipates that the amount of unrecognized tax benefits may be reduced within the next twelve months by approximately $1.6 million as a result of the settlement of certain tax examinations, lapses in statutes of limitations and voluntary tax filings for certain prior tax years.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in its provision for income taxes. During Fiscal 2014 and Fiscal 2013, the Company recognized approximately $0.1 million and $0.2 million in interest and penalties in its provision for income taxes, net of related deferred taxes, on unrecognized tax benefits. During Fiscal 2012, the Company recognized approximately $1.8 million in net interest income in its provision for income taxes, primarily due to the interest benefit associated with settlement of a U.S. federal tax examination. The Company had approximately $1.8 million, $1.8 million and $1.9 million for the payment of interest and penalties accrued at January 31, 2015, February 1, 2014 and February 2, 2013, respectively.

The Company files income tax returns in the U.S. Federal jurisdiction, and various state and local jurisdictions and generally remains open to income tax examinations by relevant tax authorities for tax years beginning with Fiscal 2010. The Company also files income tax returns in foreign jurisdictions and generally remains open to income tax examinations for tax years beginning with Fiscal 2009. The Company is under examination by certain state and local jurisdictions. Although the outcome of these examinations cannot currently be determined, the Company believes adequate provision has been made for any potential unfavorable financial statement impact.