Note D: Income Taxes

The components of earnings before income taxes, by tax jurisdiction, are as follows:


	Fiscal Year Ended
Dollars in thousands	Feb. 2, 2014 (52 Weeks)			Feb. 3, 2013 (53 Weeks)			Jan. 29, 2012 (52 Weeks)
United States	$	448,764		$	401,542		$	367,620
Foreign		3,918			8,414			14,210
Total earnings before income taxes	$	452,682		$	409,956		$	381,830
The provision for income taxes consists of the following:
	Fiscal Year Ended
Dollars in thousands	Feb. 2, 2014 (52 Weeks)			Feb. 3, 2013 (53 Weeks)			Jan. 29, 2012 (52 Weeks)
Current
Federal	$	173,686		$	136,742		$	104,370
State		25,748			22,072			22,275
Foreign		2,690			3,441			4,044
Total current		202,124			162,255			130,689
Deferred
Federal		(26,324	)		(7,827	)		15,650
State		(1,277	)		(1,202	)		(1,427	)
Foreign		(743	)		(0	)		(13	)
Total deferred		(28,344	)		(9,029	)		14,210
Total provision	$	173,780		$	153,226		$	144,899

We consider the earnings of certain foreign subsidiaries to be indefinitely invested outside the United States on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash needs and our specific plans for reinvestment of those subsidiary earnings. As such, we have not recorded a deferred tax liability related to the U.S. federal and state income taxes and foreign withholding taxes on approximately $37,400,000 of undistributed earnings of foreign subsidiaries indefinitely invested outside the United States. Furthermore, it is currently not practical to estimate the tax liability that might be payable if these foreign earnings were repatriated. Should we decide to repatriate these foreign earnings, we would need to adjust our income tax provision in the period we determine that the earnings will no longer be indefinitely invested outside the United States.

A reconciliation of income taxes at the federal statutory corporate rate to the effective rate is as follows:


	Fiscal Year Ended
	Feb. 2, 2014 (52 Weeks)			Feb. 3, 2013 (53 Weeks)			Jan. 29, 2012 (52 Weeks)
Federal income taxes at the statutory rate		35.0%			35.0%			35.0%
State income tax rate		3.7%			3.3%			3.5%
Other		(0.3%	)		(0.9%	)		(0.6%	)
Effective tax rate		38.4%			37.4%			37.9%

Significant components of our deferred tax accounts are as follows:


Dollars in thousands	Feb. 2, 2014			Feb. 3, 2013
Current:
Compensation	$	14,378		$	9,255
Merchandise inventories		27,337			23,413
Accrued liabilities		26,461			19,462
Customer deposits		58,479			55,321
Prepaid catalog expenses		(12,576	)		(13,971	)
Other		7,407			6,284
Total current		121,486			99,764
Non-current:
Depreciation		(4,216	)		(11,142	)
Deferred rent		17,500			16,205
Deferred lease incentives		(33,065	)		(29,931	)
Stock-based compensation		28,948			23,245
Executive deferral plan		5,699			4,562
Uncertainties		4,378			3,907
Other		(5,420	)		5,552
Total non-current		13,824			12,398
Total deferred tax assets, net	$	135,310		$	112,162

The following table summarizes the activity related to our gross unrecognized tax benefits:


Dollars in thousands	Fiscal 2013 (52 Weeks)			Fiscal 2012 (53 Weeks)			Fiscal 2011 (52 Weeks)
Balance at beginning of year	$	8,990		$	10,023		$	11,619
Increases related to current year tax positions		3,351			2,188			1,329
Increases related to prior years’ tax positions		328			936			379
Decreases related to prior years’ tax positions		(42	)		(171	)		(370	)
Settlements		(170	)		(1,069	)		(2,070	)
Lapses in statute of limitations		(1,692	)		(2,917	)		(864	)
Balance at end of year	$	10,765		$	8,990		$	10,023

As of February 2, 2014, we had $10,765,000 of gross unrecognized tax benefits, of which $7,202,000 would, if recognized, affect the effective tax rate.

We accrue interest and penalties related to unrecognized tax benefits in the provision for income taxes. As of February 2, 2014 and February 3, 2013, our accruals for the payment of interest and penalties totaled $2,231,000 and $2,508,000, respectively, primarily related to interest.

Due to the potential resolution of state issues, it is reasonably possible that the balance of our gross unrecognized tax benefits could decrease within the next twelve months by a range of $0 to $2,000,000.

We file income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. The Internal Revenue Service (IRS) had concluded examination of our U.S. federal income tax returns for years prior to fiscal 2011 without any significant adjustments. Substantially all material state, local and foreign income tax examinations have been concluded through fiscal 2001.