4. Income taxes

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

(In thousands)	2013			2012			2011

Current:
Federal	$	530,728		$	457,370		$	385,277
Foreign		1,324			1,209			1,449
State		101,174			78,025			56,272


		633,226			536,604			442,998


Deferred:
Federal		(16,132	)		9,734			8,313
State		(13,880	)		(1,606	)		7,293


		(30,012	)		8,128			15,606


	$	603,214		$	544,732		$	458,604

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)	2013					2012					2011

U.S. federal statutory rate on earnings before income taxes	$	569,916		35.0	%	$	524,088		35.0	%	$	428,851		35.0	%
State income taxes, net of federal income tax benefit		56,822		3.5			52,713		3.5			42,774		3.5
Jobs credits, net of federal income taxes		(19,348	)	(1.2	)		(16,062	)	(1.1	)		(15,153	)	(1.2	)
Reduction in valuation allowances		(437	)	—			(3,050	)	(0.2	)		(2,202	)	(0.2	)
Reduction in income tax reserves		(6,391	)	(0.4	)		(13,676	)	(0.9	)		—		—
Other, net		2,652		0.1			719		0.1			4,334		0.3


	$	603,214		37.0	%	$	544,732		36.4	%	$	458,604		37.4	%

The 2013 effective tax rate was an expense of 37.0%. The 2013 effective income tax rate increased from 2012 due to the favorable resolution of income tax examinations during 2012 that did not reoccur, to the same extent, in 2013. This rate increase was partially offset by the recording of an income tax benefit in 2013 associated with the expiration of the assessment period during which the taxing authorities could have assessed additional income tax associated with the Company's 2009 tax year. In addition, the 2013 amounts reflect larger income tax benefits associated with federal jobs credits. The Company receives a significant income tax benefit related to salaries paid to certain newly hired employees that qualify for federal jobs credits (principally the Work Opportunity Tax Credit or "WOTC"). The federal law authorizing the WOTC credit expired for employees hired after December 31, 2013. Whether these credits will be available for employees hired after December 31, 2013 depends upon a change in the tax law that extends the expiration date of these credit provisions, the certainty and timing of which are currently unclear.

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.

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)	January 31, 2014			February 1, 2013

Deferred tax assets:
Deferred compensation expense	$	8,666		$	9,276
Accrued expenses and other		9,067			5,727
Accrued rent		17,375			15,450
Accrued insurance		78,557			72,442
Accrued incentive compensation		3,385			15,399
Interest rate hedges		4,921			1,883
Tax benefit of income tax and interest reserves related to uncertain tax positions		3,439			2,696
Deferred gain on sale-leaseback		26,186			—
Other		15,094			13,914
State tax net operating loss carry forwards, net of federal tax		282			645
State tax credit carry forwards, net of federal tax		8,282			8,925


		175,254			146,357
Less valuation allowances		(1,393	)		(1,830	)


Total deferred tax assets		173,861			144,527


Deferred tax liabilities:
Property and equipment		(307,644	)		(294,204	)
Inventories		(64,481	)		(67,246	)
Trademarks		(433,130	)		(435,529	)
Amortizable assets		(2,343	)		(6,809	)
Bonus related tax method change		—			(6,534	)
Other		(2,084	)		(4,498	)


Total deferred tax liabilities		(809,682	)		(814,820	)


Net deferred tax liabilities	$	(635,821	)	$	(670,293	)

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)	January 31, 2014			February 1, 2013

Current deferred income tax liabilities, net	$	(21,795	)	$	(23,223	)
Noncurrent deferred income tax liabilities, net		(614,026	)		(647,070	)


Net deferred tax liabilities	$	(635,821	)	$	(670,293	)

The Company has state net operating loss carry forwards as of January 31, 2014 that total approximately $4.3 million which will expire in 2028. The Company also has state tax credit carry forwards of approximately $12.7 million that will expire beginning in 2021 through 2024.

A valuation allowance has been provided for state tax credit carry forwards and federal capital losses. The 2013, 2012, and 2011 decreases of $0.4 million, $3.1 million and $2.2 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 previously examined the Company's 2008 and earlier federal income tax returns. As a result, the 2008 and earlier tax years are not open for further examination by the IRS. The Company has filed an amended federal income tax return requesting a refund of approximately $5.1 million for its 2009 tax year. This amended return is expected to be examined by the IRS. As the statute of limitations has otherwise closed for the 2009 tax year, the IRS' ability to assess additional income tax for 2009 is limited to the refund requested on the amended income tax return. The IRS, at its discretion, may also choose to examine the Company's 2010 through 2013 fiscal year income tax filings. The Company has various state income tax examinations that are currently in progress. Generally, the Company's 2010 and later tax years remain open for examination by the various state taxing authorities.

As of January 31, 2014, accruals for uncertain tax benefits, interest expense related to income taxes and potential income tax penalties were $19.6 million, $2.4 million and $0.4 million, respectively, for a total of $22.4 million. Of this total amount, $3.6 million and $18.8 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 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 total 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.

The Company believes that it is reasonably possible that the reserve for uncertain tax positions may be reduced by approximately $11.2 million in the coming twelve months principally as a result of the effective settlement of several outstanding issues. Also, as of January 31, 2014, approximately $19.6 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)	2013			2012			2011

Income tax expense (benefit)	$	(3,915	)	$	(16,119	)	$	97
Income tax related interest expense (benefit)		590			344			968
Income tax related penalty expense (benefit)		30			(200	)		63

A reconciliation of the uncertain income tax positions from January 28, 2011 through January 31, 2014 is as follows:

(In thousands)	2013			2012			2011

Beginning balance	$	22,237		$	42,018		$	26,429
Increases—tax positions taken in the current year		3,484			2,114			125
Increases—tax positions taken in prior years		3,000			1,144			15,840
Decreases—tax positions taken in prior years		(608	)		(22,669	)		—
Statute expirations		(7,622	)		(166	)		(376	)
Settlements		(908	)		(204	)		—


Ending balance	$	19,583		$	22,237		$	42,018