5. Income taxes

The provision (benefit) for income taxes consists of the following:

(In thousands)	2012			2011		2010

Current:
Federal	$	457,370		$	385,277	$	273,005
Foreign		1,209			1,449		1,269
State		78,025			56,272		28,062

		536,604			442,998		302,336

Deferred:
Federal		9,734			8,313		42,024
State		(1,606	)		7,293		12,755

		8,128			15,606		54,779

	$	544,732		$	458,604	$	357,115

A reconciliation between actual income taxes and amounts computed by applying the federal statutory rate to income before income taxes is summarized as follows:

(Dollars in thousands)	2012					2011					2010

U.S. federal statutory rate on earnings before income taxes	$	524,088		35.0	%	$	428,851		35.0	%	$	344,740		35.0	%
State income taxes, net of federal income tax benefit		52,713		3.5			42,774		3.5			26,877		2.7
Jobs credits, net of federal income taxes		(16,062	)	(1.1	)		(15,153	)	(1.2	)		(8,845	)	(0.9	)
Increase (decrease) in valuation allowances		(3,050	)	(0.2	)		(2,202	)	(0.2	)		(1,003	)	(0.1	)
Income tax related interest expense (benefit), net of federal income taxes		(476	)	—			(121	)	—			(5,004	)	(0.5	)
Reduction in income tax reserves due to favorable examination resolutions		(13,676	)	(0.9	)		—		—			—		—
Other, net		1,195		0.1			4,455		0.3			350		0.1

	$	544,732		36.4	%	$	458,604		37.4	%	$	357,115		36.3	%

The 2012 effective tax rate was an expense of 36.4%. This expense was greater than the federal statutory tax rate of 35% due primarily to the inclusion of state income taxes in the total effective tax rate. The 2012 effective tax rate of 36.4% was lower than the 2011 rate of 37.4% due to the favorable resolution of a federal income tax examination during 2012.

The 2011 effective tax rate was an expense of 37.4%. This expense was greater than the federal statutory tax rate of 35% due primarily to the inclusion of state income taxes in the total effective tax rate. The 2011 effective rate was greater than the 2010 rate of 36.3% primarily due to the effective resolution of various examinations by the taxing authorities in 2010 that did not reoccur, to the same extent, in 2011. These factors resulted in rate increases in 2011, as compared to 2010, associated with state income taxes and income tax related interest expense. Increases in federal jobs related tax credits, primarily due to the Hire Act's Retention Credit, reduced the effective rate in 2011 as compared to 2010. The Retention Credit applies only to 2011.

The 2010 effective tax rate was an expense of 36.3%. This expense was greater than the federal statutory tax rate of 35% due primarily to the inclusion of state income taxes in the total effective tax rate.

Deferred taxes reflect the effects of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows:

(In thousands)	February 1, 2013			February 3, 2012

Deferred tax assets:
Deferred compensation expense	$	9,276		$	7,851
Accrued expenses and other		5,727			6,735
Accrued rent		15,450			11,125
Accrued insurance		72,442			70,180
Accrued bonuses		15,399			16,686
Interest rate hedges		1,883			4,479
Tax benefit of income tax and interest reserves related to uncertain tax positions		2,696			2,690
Other		13,914			16,010
State tax net operating loss carry forwards, net of federal tax		645			33
State tax credit carry forwards, net of federal tax		8,925			10,628

		146,357			146,417
Less valuation allowances		(1,830	)		(4,881	)

Total deferred tax assets		144,527			141,536

Deferred tax liabilities:
Property and equipment		(294,204	)		(287,447	)
Inventories		(67,246	)		(49,345	)
Trademarks		(435,529	)		(435,611	)
Amortizable assets		(6,809	)		(13,234	)
Bonus related tax method change		(6,534	)		(13,078	)
Other		(4,498	)		(3,539	)

Total deferred tax liabilities		(814,820	)		(802,254	)

Net deferred tax liabilities	$	(670,293	)	$	(660,718	)

Net deferred tax liabilities are reflected separately on the consolidated balance sheets as current and noncurrent deferred income taxes. The following table summarizes net deferred tax liabilities as recorded in the consolidated balance sheets:

(In thousands)	February 1, 2013			February 3, 2012

Current deferred income tax liabilities, net	$	(23,223	)	$	(3,722	)
Noncurrent deferred income tax liabilities, net		(647,070	)		(656,996	)

Net deferred tax liabilities	$	(670,293	)	$	(660,718	)

The Company has state net operating loss carry forwards as of February 1, 2013 that total approximately $7.3 million which will expire in 2028. The Company also has state tax credit carry forwards of approximately $14.0 million that will expire beginning in 2021 through 2023.

The valuation allowance has been provided for state tax credit carry forwards and federal capital losses. The 2012, 2011, and 2010 decreases of $3.1 million, $2.2 million and $1.0 million, respectively, were recorded as a reduction in income tax expense. Based upon expected future income, management believes that it is more likely than not that the results of operations will generate sufficient taxable income to realize the deferred tax assets after giving consideration to the valuation allowance.

The Internal Revenue Service ("IRS") has completed its examination of the Company's federal income tax returns for fiscal years 2006, 2007, and 2008. As a result, the 2008 and earlier tax years are not open for examination by the IRS. The IRS, at its discretion, may choose to examine the Company's 2009, 2010, or 2011 fiscal year income tax filings. The Company has various state income tax examinations that are currently in progress. Generally, the Company's 2009 and later tax years remain open for examination by the various state taxing authorities.

As of February 1, 2013, accruals for uncertain tax benefits, interest expense related to income taxes and potential income tax penalties were $22.2 million, $2.3 million and $0.4 million, respectively, for a total of $24.9 million. Of this amount, $1.5 million and $23.4 million are reflected in current liabilities as Accrued expenses and other and in noncurrent Other liabilities, respectively, in the consolidated balance sheet.

As of February 3, 2012, accruals for uncertain tax benefits, interest expense related to income taxes and potential income tax penalties were $42.0 million, $1.2 million and $0.6 million, respectively, for a total of $43.8 million. Of this amount, $0.3 million and $41.1 million are reflected in current liabilities as Accrued expenses and other and in noncurrent Other liabilities, respectively, in the consolidated balance sheet with the remaining $2.4 million reducing deferred tax assets related to net operating loss carry forwards.

The Company believes that it is reasonably possible that the reserve for uncertain tax positions may be reduced by approximately $15.4 million in the coming twelve months principally as a result of the expiration of the statute of limitations. Also, as of February 1, 2013, approximately $22.2 million of the uncertain tax positions would impact the Company's effective income tax rate if the Company were to recognize the tax benefit for these positions.

The amounts associated with uncertain tax positions included in income tax expense consists of the following:

(In thousands)	2012			2011		2010

Income tax expense (benefit)	$	(16,119	)	$	97	$	(12,000	)
Income tax related interest expense (benefit)		344			968		(5,800	)
Income tax related penalty expense (benefit)		(200	)		63		(700	)

A reconciliation of the uncertain income tax positions from January 29, 2010 through February 1, 2013 is as follows:

(In thousands)	2012			2011			2010

Beginning balance	$	42,018		$	26,429		$	67,636
Increases—tax positions taken in the current year		2,114			125			125
Increases—tax positions taken in prior years		1,144			15,840			—
Decreases—tax positions taken in prior years		(22,669	)		—			(36,973	)
Statute expirations		(166	)		(376	)		(1,570	)
Settlements		(204	)		—			(2,789	)

Ending balance	$	22,237		$	42,018		$	26,429