INCOME TAXES

Income from continuing operations before taxes was comprised of (in thousands):



	2013		2012		2011
Domestic	$	37,325	$	302,589	$	192,312
Foreign	35,952		64,356		25,495
Total	$	73,277	$	366,945	$	217,807

Domestic income from continuing operations above includes intercompany charges to foreign affiliates for management fees, cost-sharing, royalties, including those related to international direct-to-consumer operations, and interest. The provision for tax expense from continuing operations consisted of (in thousands):



	2013			2012			2011
Current:
Federal	$	52,579		$	111,761		$	100,495
State	(4,988		)	15,323			11,085
Foreign	17,851			17,984			13,262
	$	65,442		$	145,068		$	124,842
Deferred:
Federal	$	(36,732	)	$	(10,456	)	$	(32,776	)
State	(4,606		)	458			(8,662		)
Foreign	(5,455		)	(5,136		)	(8,735		)
	$	(46,793	)	$	(15,134	)	$	(50,173	)
Total provision	$	18,649		$	129,934		$	74,669

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



	2013		2012		2011
Federal income tax rate	35.0	%	35.0	%	35.0	%
State income tax, net of federal income tax effect	(10.2	)	2.7		3.9
Tax effect of foreign earnings	2.1		(1.8	)	(3.0	)
Other items, net	(1.4	)	(0.5	)	(1.6	)
Total	25.5	%	35.4	%	34.3	%

Income taxes paid directly to taxing authorities net of refunds received were $116.3 million, $122.5 million, and $120.0 million in Fiscal 2013, Fiscal 2012, and Fiscal 2011, respectively. These amounts include payments and refunds for income and withholding taxes incurred related to the current year and all prior years.

The effect of temporary differences which gives rise to deferred income tax assets (liabilities) were as follows (in thousands):



	2013			2012
Deferred tax assets:
Deferred compensation	$	91,585		$	83,529
Accrued expenses and reserves	22,403			18,971
Rent	49,170			39,061
Net operating losses (NOL) and credit carryforwards	12,611			12,107
Reserves	—			6,698
Realized and unrealized investment losses	—			592
Other	307			—
Valuation allowance	(202		)	(158		)
Total deferred tax assets	$	175,874		$	160,800
Deferred tax liabilities:
Property, equipment and intangibles	(36,266		)	(57,875		)
Inventory	(8,487		)	(13,156		)
Store supplies	(7,798		)	(9,990		)
Prepaid expenses	(2,116		)	—
Other	(3,754		)	(2,140		)
Total deferred tax liabilities	$	(58,421	)	$	(83,161	)
Net deferred income tax assets	$	117,453		$	77,639

Accumulated other comprehensive income is shown net of deferred tax assets and deferred tax liabilities, resulting in a deferred tax asset of $0.3 million and a deferred tax liability of $0.8 million for Fiscal 2013 and Fiscal 2012, respectively. These deferred taxes are not reflected in the table above.

As of February 1, 2014, the Company had deferred tax assets related to foreign and state net operating losses of $11.5 million and $0.2 million, respectively that could be utilized to reduce future years’ tax liabilities. If not utilized, a portion of the foreign net operating loss carryovers will begin to expire in the year 2016 and a portion of state net operating losses will begin to expire in the year 2021. Some foreign net operating losses have an indefinite carryforward period.

As of February 1, 2014 the Company had deferred tax assets related to state credit carryovers of $0.9 million that could be utilized to reduce future years’ tax liabilities. If not utilized, the credit carryforwards will expire in 2023. The utilization of credit carryforwards may be limited in a given year.

The Company believes it is more likely than not that net operating losses and credit carryovers would reduce future years’ tax liabilities in various states and certain foreign jurisdictions less any associated valuation allowance. All foreign net operating loss valuation allowances have been reflected through the Consolidated Statements of Operations and Comprehensive Income. No other valuation allowances have been provided for deferred tax assets because the Company believes that it is more likely than not that the full amount of the net deferred tax assets will be realized in the future.

A reconciliation of the beginning and ending amounts of uncertain tax positions is as follows:



	2013			2012			2011
	(in thousands)
Uncertain tax positions, beginning of the year	$	11,116		$	13,404		$	14,827
Gross addition for tax positions of the current year	449			1,084			1,183
Gross addition for tax positions of prior years	30			227			1,602
Reductions of tax positions of prior years for:
Lapses of applicable statutes of limitations	(2,880		)	(2,053		)	(2,448		)
Settlements during the period	(3,936		)	(1,480		)	(1,631		)
Changes in judgment	(597		)	(66		)	(129		)
Uncertain tax positions, end of year	$	4,182		$	11,116		$	13,404

The amount of the above uncertain tax positions at February 1, 2014, February 2, 2013 and January 28, 2012 which would impact the Company’s effective tax rate, if recognized, was $4.2 million, $11.1 million and $13.4 million, respectively.

The Company recognizes accrued interest and penalties related to uncertain tax positions as a component of income tax expense. During Fiscal 2013, the Company recognized a $1.3 million benefit related to net interest and penalties compared to a $0.9 million benefit recognized during Fiscal 2012. Interest and penalties of $1.6 million had been accrued at the end of Fiscal 2013, compared to $4.9 million accrued at the end of Fiscal 2012.

The Internal Revenue Service (“IRS”) is currently conducting an examination of the Company’s U.S. federal income tax return for Fiscal 2013 as part of the IRS’s Compliance Assurance Process program. The IRS examinations for Fiscal 2012 has been completed and no changes are anticipated. The IRS examinations for Fiscal 2011 and prior years have been completed and settled. State and foreign returns are generally subject to examination for a period of three to five years after the filing of the respective return. The Company has various state and foreign income tax returns in the process of examination, administrative appeals or litigation. The outcome of which is not expected to have a material impact on the Company's financial statements. The Company believes that some of these audits and negotiations will conclude within the next 12 months and that it is reasonably possible the amount of uncertain income tax positions, including interest, may decrease in the range of $2 million to $3 million due to settlements of audits and expirations of statutes of limitations.

The Company does not expect material adjustments to the total amount of uncertain tax positions within the next 12 months, but the outcome of tax matters is uncertain and unforeseen results can occur.

As of February 1, 2014, U.S. taxes have not been provided on approximately $109.5 million of unremitted earnings of subsidiaries operating outside of the United States. These earnings, which are considered to be invested indefinitely, would become subject to income tax if they were remitted as dividends or were lent to Abercrombie & Fitch or a U.S. affiliate, or if Abercrombie & Fitch were to sell its stock in the subsidiaries. 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.