INCOME TAXES

Prior years in the below tables have been adjusted for the accounting method change for inventory (see Note 2 for the impact of the change in accounting principle).

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



	Fiscal Year Ended
	February 2, 2013		January 28, 2012		January 29, 2011
U.S.	$	36,948	$	47,101	$	61,095
Foreign	52,747		57,652		66,585
Total	$	89,695	$	104,753	$	127,680


12.	INCOME TAXES (Continued)

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



	Fiscal Year Ended
	February 2, 2013			January 28, 2012			January 29, 2011
Continuing Operations
Current -
Federal	$	7,575		$	6,984		$	(207	)
State	5,230			6,462			7,240
Foreign	11,674			14,693			16,713
Total current	24,479			28,139			23,746
Deferred -
Federal	3,045			1,542			22,517
State	(762		)	1,590			981
Foreign	(310		)	(863		)	676
Total deferred	1,973			2,269			24,174
Tax provision as shown on the consolidated statements of operations	$	26,452		$	30,408		$	47,920
Effective tax rate	29.5		%	29.0		%	37.5		%

Discontinued Operations
Federal	$	—		$	—		$	(249	)
State	—			—			(62		)
Foreign	—			—			—
Total benefit	$	—		$	—		$	(311	)

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
	February 2, 2013			January 28, 2012			January 29, 2011
Calculated income tax provision at federal statutory rate	$	31,393		$	36,664		$	44,688
State income taxes, net of federal benefit	2,904			5,234			5,344
Foreign tax rate differential	(9,044		)	(7,064		)	(6,850		)
Deemed repatriation of foreign income and reversals thereof	—			(870		)	5,359
Nondeductible expenses	1,611			1,373			771
Unrecognized tax benefit	(743		)	(3,729		)	(93		)
Change in valuation allowance	1,395			—			—
Other	(1,064		)	(1,200		)	(1,299		)
Total tax provision	$	26,452		$	30,408		$	47,920


12.	INCOME TAXES (Continued)

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



	February 2, 2013			January 28, 2012
Current –
Assets
Inventory	1,538			1,783
Reserves	12,376			6,109
Foreign tax and other tax credits	—			4,052
Total current assets	13,914			11,944
Liabilities-prepaid expenses	(4,200		)	(4,023		)
Total current, net	9,714			7,921
Noncurrent –
Property and equipment	18,519			22,631
Deferred rent	13,598			13,325
Equity compensation	4,401			6,500
Reserves and other	7,160			6,068
Net operating loss carryover and other tax credits	1,395			530
Capital loss carryover	1,560			1,560
Total noncurrent, gross	46,633			50,614
Valuation allowance	(2,955		)	(1,560		)
Net noncurrent	43,678			49,054
Total deferred tax asset, net	$	53,392		$	56,975

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. After this date the Company is fully reinvested in all its foreign 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.

As of February 2, 2013, the Company has not provided Federal taxes on approximately $169.8 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 a capital loss carryforward (“CLC”) of approximately $3.9 million, which will expire in 2015, if unused. The Company also has an Alternative Minimum Tax credit ("AMT") in Puerto Rico of approximately $1.0 million which does not expire.

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. and the AMT credit in Puerto Rico. Accordingly, a valuation allowance has been established for these tax benefits. However, to the extent that tax benefits related to these 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 foreign tax credit ("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 for Fiscal 2011. These windfall deductions were recognized directly into stockholders' equity during Fiscal 2012.

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



	February 2, 2013			January 28, 2012
Beginning Balance	$	6,935		$	11,386
Additions for current year tax positions	475			430
Additions for prior year tax positions	100			112
Reductions for prior year tax positions	(158		)	(3,344		)
Settlements	(39		)	(5		)
Reductions due to a lapse of the applicable statute of limitations	(1,394		)	(1,644		)
	$	5,919		$	6,935

Approximately $6.1 million of unrecognized tax benefits at February 2, 2013 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 $2.5 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 February 2, 2013 and January 28, 2012 accrued interest and penalties included in unrecognized tax benefits were approximately $1.9 million and $2.1 million, respectively. Interest, penalties and reversals, thereof, net of taxes, was a benefit of $0.2 million, $0.8 million and a cost of $0.2 million for Fiscal 2012, Fiscal 2011 and Fiscal 2010, 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. The Company, with certain exceptions, is no longer subject to income tax examinations by state and local or foreign tax authorities for tax years before fiscal 2008.