Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

v2.4.0.8
INCOME TAXES
 12 Months Ended
Feb. 01, 2014
Income Tax Disclosure [Abstract]  
INCOME TAXES
INCOME TAXES
Total income taxes were allocated as follows:
 
Year Ended
 
February 1, 2014
 
February 2, 2013
 
January 28, 2012
(in millions)
 
 
 
 
 
Income from continuing operations
$
357.6

 
$
359.6

 
$
291.2

Accumulated other comprehensive loss
 

 
 

 
 

marking derivative financial instruments
 

 
 

 
 

to fair value
—

 
—

 
(0.1
)
Shareholders' equity, tax benefit on
 

 
 

 
 

exercises/vesting of equity-based
 

 
 

 
 

compensation
(9.8
)
 
(21.3
)
 
(13.8
)
 
$
347.8

 
$
338.3

 
$
277.3


The provision for income taxes consists of the following: 
 
Year Ended
 
February 1,
 
February 2,
 
January 28,
(in millions)
2014
 
2013
 
2012
Federal - current
$
304.6

 
$
324.5

 
$
240.4

State - current
45.9

 
42.4

 
39.4

Foreign - current
0.4

 
0.5

 
0.3

Total current
350.9

 
367.4

 
280.1

 
 
 
 
 
 
Federal - deferred
10.5

 
0.3

 
14.9

State - deferred
0.9

 
(3.5
)
 
0.1

Foreign - deferred
(4.7
)
 
(4.6
)
 
(3.9
)
Total deferred
$
6.7

 
$
(7.8
)
 
$
11.1


Included in current tax expense for the years ended February 1, 2014, February 2, 2013 and January 28, 2012, are amounts related to uncertain tax positions associated with temporary differences, in accordance with ASC 740.
A reconciliation of the statutory federal income tax rate and the effective rate follows: 
 
Year Ended
 
February 1, 2014
 
February 2, 2013
 
January 28, 2012
Statutory tax rate
35.0
 %
 
35.0
 %
 
35.0
 %
Effect of:
 

 
 

 
 

State and local income taxes,
 

 
 

 
 

net of federal income tax benefit
3.3

 
3.0

 
3.4

Other, net
(0.8
)
 
(1.3
)
 
(1.0
)
Effective tax rate
37.5
 %
 
36.7
 %
 
37.4
 %

The rate reduction in “other, net” consists primarily of benefits from the resolution of tax uncertainties, interest on tax reserves, federal jobs credits, foreign taxes and tax-exempt interest offset by certain nondeductible expenses.
United States income taxes have not been provided on accumulated but undistributed earnings of its foreign subsidiaries as the company intends to permanently reinvest earnings.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.  Deferred tax assets and liabilities are classified on the accompanying consolidated balance sheets based on the classification of the underlying asset or liability.  Significant components of the Company's net deferred tax assets (liabilities) follow:
 
February 1,
2014
 
February 2,
2013
(in millions)
 
 
 
Deferred tax assets:
 
 
 
Deferred rent
$
38.2

 
$
35.6

Accrued expenses
34.2

 
32.6

Net operating losses and credit carryforwards
19.3

 
14.4

Accrued compensation expense
29.5

 
28.2

Other
0.6

 
0.8

Total deferred tax assets
121.8

 
111.6

Valuation allowance
(6.0
)
 
(4.3
)
Deferred tax assets, net
115.8

 
107.3

Deferred tax liabilities:
 

 
 

Property and equipment
(46.6
)
 
(32.8
)
Goodwill
(16.9
)
 
(15.9
)
Prepaid expenses
(3.7
)
 
(4.0
)
Inventory
(5.6
)
 
(3.8
)
Total deferred tax liabilities
(72.8
)
 
(56.5
)
Net deferred tax asset
$
43.0

 
$
50.8


A valuation allowance of $6.0 million, net of federal tax benefits, has been provided principally for certain state credit carryforwards and net operating loss carryforwards.  In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred taxes will not be realized.  Based upon the availability of carrybacks of future deductible amounts to the past two years’ taxable income and the Company's projections for future taxable income over the periods in which the deferred tax assets are deductible, the Company believes it is more likely than not the remaining existing deductible temporary differences will reverse during periods in which carrybacks are available or in which the Company generates net taxable income.
The company is participating in the Internal Revenue Service (“IRS”) Compliance Assurance Program (“CAP”) for the 2013 fiscal year and has applied to participate for fiscal year 2014.  This program accelerates the examination of key transactions with the goal of resolving any issues before the tax return is filed.  Our federal tax returns have been examined and all issues have been settled through our fiscal 2012 tax year.  In addition, several states completed their examination during fiscal 2013.  In general, fiscal years 2010 and forward are within the statute of limitations for state tax purposes.  The statute of limitations is still open prior to 2010 for some states.
The balance for unrecognized tax benefits at February 1, 2014, was $5.5 million.  The total amount of unrecognized tax benefits at February 1, 2014, that, if recognized, would affect the effective tax rate was $3.6 million (net of the federal tax benefit).  The following is a reconciliation of the Company’s total gross unrecognized tax benefits for the year ended February 1, 2014:
 
February 1, 2014
 
February 2, 2013
Beginning Balance
$
5.6

 
$
15.5

Additions, based on tax positions related to current year
0.2

 
2.5

Additions for tax positions of prior years
0.8

 
2.1

Reductions for tax positions of prior years
(0.2
)
 
(3.1
)
Settlements
(0.3
)
 
(1.9
)
Lapses in statutes of limitation
(0.6
)
 
(9.5
)
Ending balance
$
5.5

 
$
5.6


During fiscal 2013, the Company accrued potential interest of $0.3 million, related to these unrecognized tax benefits.  As of February 1, 2014, the Company has recorded a liability for potential interest of $0.5 million.
It is possible that state tax reserves will be reduced for audit settlements and statute expirations within the next 12 months.  At this point it is not possible to estimate a range associated with the resolution of these audits.