14. Income Taxes

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

	For the Years Ended
	January 28,		January 30,		January 31,
(In thousands)	2017		2016		2015
U.S.	$	315,199	$	289,697	$	193,167
Foreign		20,063		32,174		(33,665	)
Total	$	335,262	$	321,871	$	159,502

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

	January 28,			January 30,
(In thousands)	2017			2016
Deferred tax assets:
Rent	$	27,843		$	27,281
Deferred compensation		24,042			21,187
Foreign tax credits		22,269			20,567
Employee compensation and benefits		13,206			23,840
Inventories		10,693			9,659
Accruals not currently deductible		8,613			10,907
State tax credits		6,574			6,902
Net operating loss		5,364			6,891
Other		9,380			12,745
Gross deferred tax assets		127,984			139,979
Valuation allowance		(7,266	)		(7,720	)
Total deferred tax assets	$	120,718		$	132,259

Deferred tax liabilities:
Property and equipment	$	(63,546	)	$	(59,386	)
Other		(7,922	)		(7,946	)
Total deferred tax liabilities	$	(71,468	)	$	(67,332	)

Total deferred tax assets, net	$	49,250		$	64,927

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

As of January 28, 2017, the Company had deferred tax assets related to state and foreign net operating loss carryovers of $1.6 million and $3.8 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 the foreign net operating loss carryovers will not reduce future years’ tax liabilities in certain jurisdictions. As such a valuation allowance of $3.8 million has been recorded on the deferred tax assets related to the cumulative foreign net operating loss carryovers. We also provided for a valuation allowance of approximately $3.5 million related to other foreign deferred tax assets.

The Company has foreign tax credit carryovers in the amount of $22.3 million and $20.6 million as of January 28, 2017 and January 30, 2016, 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 $6.6 million (net of federal tax) and $6.9 million (net of federal tax) as of January 28, 2017 and January 30, 2016, 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 28,			January 30,			January 31,
(In thousands)	2017			2016			2015
Current:
Federal	$	93,961		$	86,122		$	66,229
Foreign taxes		3,168			3,836			(792	)
State		11,137			13,032			9,447
Total current		108,266			102,990			74,884
Deferred:
Federal	$	12,057		$	5,606		$	(1,178	)
Foreign taxes		(268	)		(1,977	)		(85	)
State		2,758			1,961			(2,906	)
Total deferred		14,547			5,590			(4,169	)
Provision for income taxes	$	122,813		$	108,580		$	70,715

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 28, 2017, the unremitted earnings of the Company’s foreign subsidiaries were approximately $40.8 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 28, 2017			January 30, 2016			January 31, 2015
Unrecognized tax benefits, beginning of the year balance	$	5,748		$	12,609		$	14,601
Increases in current period tax positions		1,884			2,727			2,166
Increases in tax positions of prior periods		464			—			—
Settlements		—			—			(73	)
Lapse of statute of limitations		(362	)		(516	)		(471	)
Decreases in tax positions of prior periods		(641	)		(9,072	)		(3,614	)
Unrecognized tax benefits, end of the year balance	$	7,093		$	5,748		$	12,609

As of January 28, 2017, the gross amount of unrecognized tax benefits was $7.1 million, of which $5.8 million would affect the effective income tax rate if recognized. The gross amount of unrecognized tax benefits as of January 30, 2016 was $5.7 million, of which $4.6 million would affect the effective income tax rate if recognized.

Unrecognized tax benefits increased by $1.3 million during Fiscal 2016, decreased $6.9 million during Fiscal 2015 and decreased by $2.0 million during Fiscal 2014. Over the next twelve months the Company believes it is reasonably possible the unrecognized tax benefits could decrease by as much as $4.3 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 $1.4 million and $1.3 million as of January 28, 2017 and January 30, 2016, respectively. An immaterial amount of interest and penalties were recognized in the provision for income taxes during Fiscal 2016, Fiscal 2015 and Fiscal 2014.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The company participates in the Internal Revenue Service (“IRS”) Compliance Assurance Program (“CAP”). As part of the CAP, tax years are audited on a real-time basis so that all or most issues are resolved prior to the filing of the federal tax return. The IRS has completed examinations under CAP through January 30, 2016, for which the majority of the issues have been resolved. 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 2010. 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 28,			January 30,			January 31,
	2017			2016			2015
Federal income tax rate		35.0	%		35.0	%		35.0	%
State income taxes, net of federal income tax effect		2.8			3.1			3.7
Foreign rate differential		(1.7	)		(1.6	)		0.3
Valuation allowance changes, net		0.4			(1.1	)		6.6
Change in unrecognized tax benefits		0.4			(1.5	)		(0.6	)
Other		(0.3	)		(0.2	)		(0.7	)
		36.6	%		33.7	%		44.3	%