INCOME TAXES

The components of income from continuing operations before taxes are as follows (in thousands):



	Fiscal Year Ended
	January 28, 2012		January 29, 2011		January 30, 2010
U.S.	$	51,192	$	69,674	$	59,052
Foreign	58,125		65,132		65,289
Total	$	109,317	$	134,806	$	124,341


12.	INCOME TAXES (Continued)

The components of the Company's provision for income taxes consisted of the following (in thousands):



	Fiscal Year Ended
	January 28, 2012			January 29, 2011			January 30, 2010
Continuing Operations
Current -
Federal	$	6,984		$	(207	)	$	(1,915	)
State	6,462			7,240			963
Foreign	14,693			16,713			19,107
Total current	28,139			23,746			18,155
Deferred -
Federal	2,957			25,415			11,969
State	1,890			1,596			5,447
Foreign	(894		)	462			(71		)
Total deferred	3,953			27,473			17,345
Tax provision as shown on the consolidated statements of operations	$	32,092		$	51,219		$	35,500
Effective tax rate	29.4		%	38.0		%	28.6		%

Discontinued Operations
Federal	$	—		$	(249	)	$	(262	)
State	—			(62		)	(66		)
Foreign	—			—			—
Total (benefit) provision	$	—		$	(311	)	$	(328	)

A reconciliation between the calculated tax provision on income based on statutory rates in effect and the effective tax rate for continuing operations is as follows (in thousands):



	Fiscal Year Ended
	January 28, 2012			January 29, 2011			January 30, 2010
Calculated income tax provision at federal statutory rate	$	38,261		$	47,182		$	43,519
State income taxes, net of federal benefit	5,330			5,743			4,167
Foreign tax rate differential	(7,073		)	(6,444		)	(6,030		)
Deemed repatriation of foreign income and reversals thereof	(870		)	5,359			5,532
Nondeductible expenses	1,373			771			688
Unrecognized tax expense (benefit)	(3,729		)	(93		)	(914		)
Foreign tax credits	—			—			(10,344		)
Other	(1,200		)	(1,299		)	(1,118		)
Total tax provision	$	32,092		$	51,219		$	35,500


12.	INCOME TAXES (Continued)

The tax effects of temporary differences which give rise to deferred tax assets and liabilities are as follows (in thousands):



	January 28, 2012			January 29, 2011
Current –
Assets
Inventory	11,050			11,243
Reserves	6,109			6,413
Foreign tax and other tax credits	4,052			4,995
Total current assets	21,211			22,651
Liabilities-prepaid expenses	(4,023		)	(4,369		)
Total current, net	17,188			18,282
Noncurrent –
Property and equipment	22,631			24,214
Deferred rent	13,325			12,459
Equity compensation	6,500			7,245
Reserves and other	6,068			6,740
Net Operating Loss Carryover	530			1,273
Capital loss carryover	1,560			1,560
Total noncurrent, gross	50,614			53,491
Valuation allowance	(1,560		)	(1,560		)
Net noncurrent	49,054			51,931
Total deferred tax asset, net	$	66,242		$	70,213

The Company evaluates its permanent reinvestment assertions with respect to foreign earnings at each reporting period. During the fourth quarter of fiscal 2011 the Company changed its permanent reinvestment assertion as it related to its Hong Kong and other Asian subsidiaries, whereby the Company no longer provides deferred taxes on the undistributed earnings of these subsidiaries. This had the effect of reducing the Company's anticipated income tax provision by approximately $6.9 million, of which approximately $0.9 million related to prior year non-repatriated foreign income for which U.S. income taxes were provided.

During the second quarter of Fiscal 2009, the Company received distributions from its Canadian subsidiaries of approximately $32.3 million. These dividends were used to assist in the share repurchase transaction described in Note 2 and due to the one time nature of these distributions, they did not affect the Company's status of being permanently reinvested in its Canadian subsidiaries. They also generated foreign tax credits of approximately $33.8 million. These foreign tax credits can be utilized to reduce U.S. income tax and will expire in fiscal 2019 if unused. The Company's Fiscal 2009 provision for income taxes was reduced by approximately $10.3 million due to this distribution.

As of January 28, 2012, the Company has not provided Federal taxes on approximately $128.0 million of unremitted earnings of its foreign subsidiaries. The Company intends to reinvest these earnings to fund expansion in these and other markets outside the U.S. Accordingly, the Company has not provided any provision for income tax expense in excess of foreign jurisdiction income tax requirements relative to such unremitted earnings in the accompanying financial statements. Determining the unrecognized deferred tax liability for these undistributed foreign earnings is not practicable.

The Company has estimated a foreign tax credit carryover (“FTC”) of approximately $11.1 million which will expire between 2019 and 2021 if unused. The Company also has a capital loss carryforward (“CLC”) of approximately $3.9 million, which will expire in 2015, if unused.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon


12.	INCOME TAXES (Continued)

the generation of future taxable income during the periods in which those temporary differences become realizable.

Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. The Company has concluded that it is more likely than not that certain deferred tax assets cannot be used in the foreseeable future, principally the CLC in the U.S. Accordingly, a valuation allowance has been established for this tax benefit. However, to the extent that tax benefits related to this CLC are realized in the future, the reduction of the valuation allowance will reduce income tax expense accordingly.

Deferred tax assets relating to tax benefits of stock-based compensation have been reduced to reflect exercises of stock options and vesting of restricted shares during Fiscal 2011 to the extent recognized for financial statement purposes. Some exercises resulted in tax deductions in excess of previously recorded benefits at the time of grant. Although these additional tax benefits were reflected in the FTC disclosed above, pursuant to the provisions of the “Compensation-Stock Compensation” topic of FASB ASC, they are not recognized in the deferred tax balances until the deductions reduce taxes payable. The windfall deductions do not reduce our current federal taxes payable in Fiscal 2011 because of the FTC generated in the current and prior years. As such, these windfall tax benefits are not reflected in our FTC included in the deferred tax assets disclosed in the above table. Windfall deductions included in our FTC balance but not reflected in the deferred tax assets in the table above were approximately $6.8 million and $7.5 million for Fiscal 2011 and Fiscal 2010 , respectively. When realized, these windfall deductions are recognized directly to stockholders' equity.

A reconciliation of the gross amounts of unrecognized tax benefits, excluding accrued interest and penalties, is as follows (in thousands):



	January 28, 2012			January 29, 2011
Beginning Balance	$	11,386		$	11,848
Additions for current year tax positions	430			680
Additions for prior year tax positions	112			325
Reductions for prior year tax positions	(3,344		)	(911		)
Settlements	(5		)	(28		)
Reductions due to a lapse of the applicable statute of limitations	(1,644		)	(528		)
	$	6,935		$	11,386

Approximately $6.9 million of unrecognized tax benefits at January 28, 2012 would affect the Company's effective tax rate if recognized. The Company believes it is reasonably possible that there may be a reduction of approximately $3.5 million of unrecognized tax benefits in the next 12 months as a result of settlements with taxing authorities and statute of limitations expirations.

The Company accrued interest and penalties related to unrecognized tax benefits as part of the provision for income taxes. At January 28, 2012 and January 29, 2011 accrued interest and penalties included in unrecognized tax benefits were approximately $2.1 million and $3.4 million, respectively. Interest, penalties and reversals, thereof, net of taxes, was a benefit of $0.8 million, a cost of $0.2 million and a benefit of $1.0 million for Fiscal 2011, Fiscal 2010 and Fiscal 2009, respectively. Included in income tax expense for Fiscal 2011, the Company recorded a benefit of approximately $3.7 million related to unrecognized tax benefits primarily as a result of settlements with taxing authorities and statute of limitations expirations.

The Company is subject to tax in the United States and foreign jurisdictions, including Canada and Hong Kong. The Company, joined by its domestic subsidiaries, files a consolidated income tax return for Federal income tax purposes. During Fiscal 2009, the Company completed the U.S. Federal income tax audit for fiscal years 2006 and prior. With few exceptions, the Company is no longer subject to state and local income tax or non-U.S. income tax examinations by tax authorities for tax years before fiscal 2008.