5. INCOME TAXES

Earnings before income taxes (in thousands):

	Fiscal Year

	2012		2011		2010
United States	$	143,215	$	133,405	$	49,150
Foreign		54,457		51,005		51,380

Total	$	197,672	$	184,410	$	100,530

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

	Fiscal Year

	2012			2011		2010
Current tax expense:
Federal	$	41,107		$	24,087	$	20,240
State		5,430			4,780		3,402
Foreign		13,892			5,649		475
Deferred tax expense (benefit):
Federal and state		5,739			20,864		(4,439	)
Foreign		(559	)		8,564		13,174

Total	$	65,609		$	63,944	$	32,852

No provision for U.S. income taxes or Canadian withholding taxes has been made on the cumulative undistributed earnings of foreign companies (approximately $219.1 million at February 2, 2013) because we intend to reinvest permanently outside of the U.S. The potential deferred tax liability associated with these earnings, net of foreign tax credits associated with the earnings, is estimated to be $39.8 million.

A reconciliation of the statutory federal income tax rate to our effective tax rate is as follows:

	Fiscal Year

	2012			2011			2010
Federal statutory rate		35.0	%		35.0	%		35.0	%
State income taxes, net of federal benefit		2.9			3.1			2.5
Exchange rate impact from distributed foreign earnings		—			—			—
Net change in tax accruals		(0.2	)		(0.2	)		(1.4	)
Foreign tax rate differential		(2.3	)		(1.5	)		(0.2	)
Amortizable tax goodwill		(0.9	)		(1.0	)		(1.1	)
Other		(1.6	)		(0.7	)		(0.7	)
Valuation allowance		0.3			—			(1.4	)

		33.2	%		34.7	%		32.7	%

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 the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income, and projections for future taxable income over the periods for which the deferred tax assets are deductible, management believes, as of February 2, 2013, it is more likely than not that the Company will realize the benefits of the deferred tax assets, except as discussed below.

At February 2, 2013, we had net deferred tax liabilities of $7.0 million with $26.6 million classified as other current assets, $1.8 million classified as other non-current assets, and $35.4 million classified as other non-current liabilities. At January 28, 2012, we had net deferred tax liabilities of $1.8 million with $29.4 million classified as other current assets and $31.2 million classified as other non-current liabilities. A valuation allowance of $0.6 million was established and included in net deferred tax assets at February 2, 2013 based on our assumptions about our ability to utilize foreign tax credits carryforwards before such credits expire.

Total deferred tax assets and liabilities and the related temporary differences as of February 2, 2013 and January 28, 2012 were as follows (in thousands):

	February 2, 2013			January 28, 2012

Deferred tax assets:
Accrued rent and other expenses	$	37,314		$	30,913
Accrued compensation		20,602			21,415
Accrued inventory markdowns		2,541			3,153
Deferred intercompany profits		918			1,528
Other		38			—
Tax loss and other carryforwards		13,938			19,171

Total deferred tax assets		75,351			76,180
Valuation allowance		(555	)		—

Net deferred tax assets		74,796			76,180

Deferred tax liabilities:
Property and equipment		(62,939	)		(58,232	)
Capitalized inventory costs		(4,819	)		(5,042	)
Intangibles		(14,021	)		(14,333	)
Other		—			(342	)

Total deferred tax liabilities		(81,779	)		(77,949	)

Net deferred tax liabilities	$	(6,983	)	$	(1,769	)

In accordance with the guidance regarding accounting for uncertainty in income taxes, we classify uncertain tax positions as non-current income tax liabilities unless expected to be paid within one year and recognize interest and/or penalties related to income tax matters in income tax expense. As of February 2, 2013 and January 28, 2012, the total amount of accrued interest related to uncertain tax positions was $0.9 million and $1.4 million, respectively. Amounts charged to operations for interest and/or penalties related to income tax matters were $0.2 million, $0.3 million and $0.4 million in fiscal 2012, 2011 and 2010, respectively.

The following table summarizes the activity related to our unrecognized tax benefits (in thousands):

	February 2, 2013			January 28, 2012

Gross unrecognized tax benefits, beginning balance	$	4,346		$	5,559
Increase in tax positions for prior years		621			257
Decrease in tax positions for prior years		(417	)		(27	)
Increase in tax positions for current year		539			811
Decrease in tax positions for current year		—			—
Settlements		(358	)		(1,107	)
Lapse from statute of limitations		(814	)		(1,147	)

Gross unrecognized tax benefits, ending balance	$	3,917		$	4,346

Of the $3.9 million in unrecognized tax benefits as of February 2, 2013, $2.8 million, if recognized, would reduce our income tax expense and effective tax rate. It is reasonably possible that there could be a net reduction in the balance of unrecognized tax benefits of up to $1.2 million in the next twelve months.

The Company is subject to routine compliance examinations on tax matters by various tax jurisdictions in the ordinary course of business. Tax years 2008 through 2012 are open to such examinations. Our tax jurisdictions include the United States, Canada, the United Kingdom, The Netherlands and France as well as their states, provinces and other political subdivisions. A number of U.S. state examinations are ongoing.

At February 2, 2013, the Company had federal, state and foreign net operating loss ("NOL") carryforwards of approximately $27.5 million, $18.4 million and $9.5 million, respectively. The federal and state NOLs will expire between fiscal 2016 and 2032; the $9.5 million of foreign NOLs can be carried forward indefinitely. We also had $0.6 million of foreign tax credit ("FTC") carryforwards at February 2, 2013 which will expire in 2019. A valuation allowance of $0.6 million was established for the potential limited utilization of the FTC carryforwards.