13.

Income Taxes

The provision for income tax consisted of the following:


	53 Weeks Ended February 2, 2013			52 Weeks Ended January 28, 2012			52 Weeks Ended January 29, 2011
	(In millions)
Current tax expense:
Federal	$	229.6		$	193.5		$	133.3
State		24.1			20.9			13.3
Foreign		29.4			21.4			29.8

		283.1			235.8			176.4

Deferred tax expense (benefit):
Federal		(46.3	)		(10.2	)		39.1
State		(3.5	)		(0.2	)		2.7
Foreign		(8.4	)		(14.8	)		(3.6	)

		(58.2	)		(25.2	)		38.2

Total income tax expense	$	224.9		$	210.6		$	214.6

The components of earnings (loss) before income tax expense consisted of the following:


	53 Weeks Ended February 2, 2013			52 Weeks Ended January 28, 2012			52 Weeks Ended January 29, 2011
	(In millions)
United States	$	547.2		$	551.9		$	553.8
International		(592.1	)		(2.8	)		67.6

Total	$	(44.9	)	$	549.1		$	621.4

The difference in income tax provided and the amounts determined by applying the statutory rate to earnings (loss) before income taxes resulted from the following:


	53 Weeks Ended February 2, 2013			52 Weeks Ended January 28, 2012			52 Weeks Ended January 29, 2011
Federal statutory tax rate		35.0	%		35.0	%		35.0	%
State income taxes, net of federal effect		(27.7	)		2.6			1.7
Foreign income taxes		5.6			1.3			0.3
Nondeductible goodwill impairments		(488.6	)		—			—
Change in valuation allowance		(22.5	)		0.1			0.1
Other (including permanent differences)		(2.7	)		(0.6	)		(2.6	)

		(500.9	)%		38.4	%		34.5	%

Differences between financial accounting principles and tax laws cause differences between the bases of certain assets and liabilities for financial reporting purposes and tax purposes. The tax effects of these differences, to the extent they are temporary, are recorded as deferred tax assets and liabilities and consisted of the following components (in millions):


	February 2, 2013			January 28, 2012
Deferred tax asset:
Inventory obsolescence reserve	$	23.6		$	18.8
Deferred rents		13.6			16.1
Stock-based compensation		25.3			24.1
Net operating losses		15.0			16.5
Customer liabilities		38.1			29.4
Property and equipment		9.3			—
Other		11.1			7.5

Total deferred tax assets		136.0			112.4
Valuation allowance		(13.5	)		(3.4	)

Total deferred tax assets, net		122.5			109.0

Deferred tax liabilities:
Property and equipment		—			(25.2	)
Goodwill		(55.0	)		(49.6	)
Prepaid expenses		(6.6	)		(8.0	)
Acquired intangible assets		(24.6	)		(41.7	)
Other		(6.1	)		(6.9	)

Total deferred tax liabilities		(92.3	)		(131.4	)

Net	$	30.2		$	(22.4	)

Consolidated financial statements:
Deferred income tax assets — current	$	61.7		$	44.7

Deferred income tax liabilities — noncurrent	$	(31.5	)	$	(67.1	)

In addition, the valuation allowance for deferred tax assets as of the fiscal year ended January 29, 2011 was $2.7 million.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. The Internal Revenue Service (“IRS”) is currently examining the Company’s U.S. income tax returns for the fiscal years ended January 30, 2010 and January 31, 2009. The Company does not anticipate any adjustments that would result in a material impact on its consolidated financial statements as a result of these audits. The Company is no longer subject to U.S. federal income tax examination for years before and including the fiscal year ended January 28, 2006.

With respect to state and local jurisdictions and countries outside of the United States, the Company and its subsidiaries are typically subject to examination for three to six years after the income tax returns have been filed. Although the outcome of tax audits is always uncertain, the Company believes that adequate amounts of tax, interest and penalties have been provided for in the accompanying consolidated financial statements for any adjustments that might be incurred due to state, local or foreign audits.

As of February 2, 2013, the gross amount of unrecognized tax benefits was approximately $28.7 million. If the Company were to prevail on all uncertain tax positions, the net effect would be a benefit to the Company’s effective tax rate of approximately $17.5 million, exclusive of any benefits related to interest and penalties.

A reconciliation of the changes in the gross balances of unrecognized tax benefits follows (in millions):


	February 2, 2013			January 28, 2012			January 29, 2011
Beginning balance of unrecognized tax benefits	$	25.4		$	24.9		$	35.2
Increases related to current period tax positions		0.5			—			—
Increases related to prior period tax positions		6.3			9.9			2.1
Reductions as a result of a lapse of the applicable statute of limitations		(3.2	)		(2.0	)		(6.4	)
Reductions as a result of settlements with taxing authorities		(0.3	)		(7.4	)		(6.0	)

Ending balance of unrecognized tax benefits	$	28.7		$	25.4		$	24.9

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. As of February 2, 2013, January 28, 2012 and January 29, 2011, the Company had approximately $5.4 million, $3.2 million and $6.2 million, respectively, in interest and penalties related to unrecognized tax benefits accrued, of which approximately $2.3 million of expense and $2.7 million of benefit were recognized through income tax expense in the fiscal years ended February 2, 2013 and January 28, 2012, respectively, with an immaterial amount recognized in income tax expense in the fiscal year ended January 29, 2011. If the Company were to prevail on all uncertain tax positions, the reversal of this accrual would also be a benefit to the Company’s effective tax rate.

It is reasonably possible that the amount of the unrecognized benefit with respect to certain of the Company’s unrecognized tax positions could significantly increase or decrease within the next 12 months as a result of settling ongoing audits. At this time, an estimate of the range of the reasonably possible outcomes cannot be made.

Deferred taxes have not been provided on undistributed earnings approximating $492.6 million of certain foreign subsidiaries as of February 2, 2013 because the Company intends to permanently reinvest such earnings outside the United States. Our current plans do not demonstrate a need to, nor do we have plans to, repatriate the retained earnings from these subsidiaries as the earnings are permanently reinvested. However, in the future, if we determine it is necessary to repatriate these funds, or we sell or liquidate any of these subsidiaries, we may be required to pay associated taxes on the repatriation. We may also be required to withhold foreign taxes depending on the foreign jurisdiction from which the funds are repatriated. The effective rate of tax on such repatriations may materially differ from the federal statutory tax rate, thereby having a material impact on tax expense in the year of repatriation; however, the Company cannot reasonably estimate the amount of such a tax event.