Note 7 – Income Taxes

The provision for income taxes consisted of:

(In thousands)	2014			2013			2012

Current:
Federal	$	14,575		$	15,366		$	19,581
State		1,800			1,805			2,601
Puerto Rico		350			185			79
Total current		16,725			17,356			22,261

Deferred:
Federal		(1,229	)		(139	)		(2,692	)
State		(115	)		(138	)		(304	)
Puerto Rico		(1,149	)		(444	)		(350	)
Total deferred		(2,493	)		(721	)		(3,346	)
Valuation Allowance		1,943			0			0
Total provision	$	16,175		$	16,635		$	18,915

We realized a tax benefit of $69,000, $199,000 and $1.4 million in fiscal years 2014, 2013 and 2012, respectively, as a result of the exercise of stock options and the vesting of restricted stock, which is recorded in shareholders' equity.

Reconciliation between the statutory federal income tax rate and the effective income tax rate is as follows:

Fiscal years	2014			2013			2012

U.S. Federal statutory tax rate		35.0	%		35.0	%		35.0	%
State and local income taxes, net of federal tax benefit		3.1			3.8			4.8
Puerto Rico		0.2			(0.6	)		(0.6	)
Valuation Allowance		4.7			0.0			0.0
Tax benefit on foreign losses		(4.3	)		0.0			0.0
Other		0.1			0.0			0.0
Effective income tax rate		38.8	%		38.2	%		39.2	%

We recorded $300,000, $346,000 and $162,000 in federal employment related tax credits in fiscal 2014, 2013 and 2012, respectively.

Deferred income taxes are the result of temporary differences in the recognition of revenue and expense for tax and financial reporting purposes. The sources of these differences and the tax effect of each are as follows:

(In thousands)	January 31, 2015			February 1, 2014
Deferred tax assets:
Accrued rent	$	4,045		$	3,543
Accrued compensation		5,896			5,625
Accrued employee benefits		523			506
Inventory		740			411
Self-insurance reserves		592			593
Lease incentives		12,073			10,003
Net operating loss carry forward		1,943			449
Other		367			396
Total deferred tax assets		26,179			21,526
Valuation allowance		(1,943	)		0
Total deferred tax assets – net of valuation allowance		24,236			21,526

Deferred tax liabilities:
Depreciation		17,767			15,265
Capitalized costs		1,284			1,180
Puerto Rico net operating loss carry forward impact to federal taxes		0			444
Other		1			3
Total deferred tax liabilities		19,052			16,892
Net deferred tax asset		5,184			4,634
Less current deferred income tax benefit		(957	)		(1,208	)
Long-term deferred income taxes	$	4,227		$	3,426

At the end of fiscal 2014, we estimated foreign net operating loss carry forwards of $5.1 million, which expire between fiscal 2023 and fiscal 2024. At January 31, 2015, we had a valuation allowance of $1.9 million. The valuation allowance relates to foreign net operating losses that would be realizable only upon the generation of future taxable income in the jurisdiction in which the losses were incurred.

Our unrecognized tax liabilities presented below relate to tax years encompassing our fiscal years 1999 through 2014 for the tax years that remain subject to examination by major tax jurisdictions as of January 31, 2015. A reconciliation of the beginning and ending amount for our unrecognized tax positions, which exclude interest and penalties, is as follows:

(In thousands)	2014		2013			2012

Beginning balance	$	0	$	69		$	69
Increases – tax positions in prior period		0		0			0
Decreases – tax positions in prior period		0		(69	)		0
Gross increases – current period tax positions		0		0			0
Decreases related to settlements with taxing authorities		0		0			0
Ending balance	$	0	$	0		$	69

As of January 31, 2015, we have recorded no unrecognized tax liabilities or related accrued penalties or interest in Other liabilities on the Consolidated Balance Sheets. Our policy is to record interest and penalty expense related to income taxes as a component of income tax expense in the Consolidated Statements of Income.