INCOME TAXES

The provision for income taxes consisted of the following:



	Fiscal Year
	2009			2010			2011
	(In thousands)
Federal:
Current	$	40,638		$	43,768		$	42,161
Deferred	(2,132		)	2,949			10,463
State:
Current	8,158			9,742			8,761
Deferred	(436		)	(198		)	566
Provision for income taxes	$	46,228		$	56,261		$	61,951

Provision for income tax is reconciled to the amount computed by applying the statutory Federal income tax rate of 35% for fiscal years 2009, 2010 and 2011 to income before provision for income taxes as follows:



	Fiscal Year
	2009		2010		2011
	(In thousands)
Computed federal tax provision at statutory rates	$	41,084	$	49,721	$	55,805
State income taxes, net of federal income tax effect	5,019		6,204		6,063
Non-deductible compensation	—		131		—
Change in tax reserves	32		107		74
Other, net	93		98		9
Provision for income taxes	$	46,228	$	56,261	$	61,951

The tax effects of temporary differences that give rise to significant positions of deferred tax assets and deferred tax liabilities as of January 29, 2011 and January 28, 2012 are as follows:



	January 29, 2011			January 28, 2012
	(In thousands)
Deferred tax assets:
Current accrued liabilities and other	$	7,042		$	9,595
Noncurrent lease obligations	15,978			11,053
Noncurrent accrued liabilities and other	448			338
	23,468			20,986
Deferred tax liabilities:
Current inventories	(10,882		)	(16,491		)
Current prepaid expenses and other current assets	(1,436		)	(1,583		)
Noncurrent property, plant and equipment	(20,573		)	(23,364		)
	(32,891		)	(41,438		)
Net deferred tax liability	$	(9,423	)	$	(20,452	)

The following table summarizes the activity related to our unrecognized tax benefits and related accrued interest and penalties for fiscal years 2010 and 2011:



	Fiscal Year
	2010			2011
	(In thousands)
Unrecognized tax benefit, beginning of year	$	786		$	823
Increases related to current year tax positions	408			210
Settlement of tax positions	(70		)	(271		)
Expiration of the statue of limitations for the assessment of taxes	(301		)	(136		)
Unrecognized tax benefit, end of year	$	823		$	626

In assessing the realizability of deferred tax assets, management considered whether it was more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of the deferred tax assets is dependent upon existence of taxable income in carryback periods and the generation of future taxable income during periods in which temporary differences become deductible. Management considered income taxes paid during the previous two years and projected future taxable income in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the temporary differences are deductible, management has determined that no valuation allowance was required at January 29, 2011 and January 28, 2012.

The fiscal year 2011 effective income tax rate was 38.9%, as compared with 39.6% for fiscal year 2010. The decrease during fiscal year 2011 was primarily driven by lower state income taxes.

Significant changes to U.S. federal or state income tax rules could occur as part of future legislation. Such changes could influence our future income tax expense and/or the timing of income tax deductions. The impact of such changes on our business operations and financial statements remains uncertain. However, as the possibility of any enactment progresses, we will continue to monitor current developments and assess the potential implications of these tax law changes on our business and consolidated financial statements.

We file a federal income tax return and state and local income tax returns in various jurisdictions. The Internal Revenue Service (“IRS”) has audited tax returns through fiscal year 2008, including its examination of the tax returns for fiscal years 2007 and 2008 which was finalized in October 2010. No material adjustments were required to these tax returns as a result of the examination by the IRS. For the years before fiscal year 2008, the majority of our state and local income tax returns are no longer subject to examinations by taxing authorities.