INCOME TAXES

The provision for income taxes consisted of the following:



	Fiscal Year
	2010			2011		2012
	(In thousands)
Federal:
Current	$	43,768		$	42,161	$	42,532
Deferred	2,949			10,463		652
State:
Current	9,742			8,761		5,348
Deferred	(198		)	566		615
Provision for income taxes	$	56,261		$	61,951	$	49,147

Provision for income tax is reconciled to the amount computed by applying the statutory Federal income tax rate of 35% for fiscal years 2010, 2011 and 2012 to income before provision for income taxes as follows:



	Fiscal Year
	2010		2011		2012
	(In thousands)
Computed federal tax provision at statutory rates	$	49,721	$	55,805	$	45,095
State income taxes, net of federal income tax effect	6,204		6,063		3,876
Non-deductible compensation	131		—		—
Change in tax reserves	107		74		119
Other, net	98		9		57
Provision for income taxes	$	56,261	$	61,951	$	49,147

The tax effects of temporary differences that give rise to significant positions of deferred tax assets and deferred tax liabilities as of January 28, 2012 and February 2, 2013 are as follows:



	January 28, 2012			February 2, 2013
	(In thousands)
Deferred tax assets:
Current accrued liabilities and other	$	9,595		$	10,117
Noncurrent lease obligations	11,053			9,685
Noncurrent accrued liabilities and other	338			352
	20,986			20,154
Deferred tax liabilities:
Current inventories	(16,491		)	(20,278		)
Current prepaid expenses and other current assets	(1,583		)	(1,767		)
Noncurrent property, plant and equipment	(23,364		)	(19,828		)
	(41,438		)	(41,873		)
Net deferred tax liability	$	(20,452	)	$	(21,719	)

The following table summarizes the activity related to our unrecognized tax benefits and related accrued interest and penalties for fiscal years 2011 and 2012:



	Fiscal Year
	2011			2012
	(In thousands)
Unrecognized tax benefit, beginning of year	$	823		$	626
Increases related to current year tax positions	210			293
Settlement of tax positions	(271		)	(132		)
Expiration of the statue of limitations for the assessment of taxes	(136		)	(174		)
Unrecognized tax benefit, end of year	$	626		$	613

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 28, 2012 and February 2, 2013.

The fiscal year 2012 effective income tax rate was 38.1%, as compared with 38.9% for fiscal year 2011. The decrease during fiscal year 2012 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 along with 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 2009, the majority of our state and local income tax returns are no longer subject to examinations by taxing authorities.