Income Taxes:

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



	2012			2011			2010
Current tax expense:
Federal	$	165,519		$	112,142		$	85,854
State	20,342			13,878			7,444
Total current	185,861			126,020			93,298

Deferred tax expense (benefit):
Federal	(20,857		)	3,220			2,116
State	(5,724		)	(1,364		)	1,554
Total deferred	(26,581		)	1,856			3,670
Total provision	$	159,280		$	127,876		$	96,968

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the deferred tax assets and liabilities are as follows (in thousands):



	2012			2011
Current tax assets:
Inventory valuation	$	11,981		$	10,171
Accrued employee benefit costs	27,636			24,807
Accrued sales taxes	3,564			4,221
Other	8,439			9,251
	51,620			48,450
Current tax liabilities:
Inventory basis difference	(26,182		)	(37,730		)
Prepaid expenses	(1,541		)	(1,055		)
Other	(799		)	(798		)
	(28,522		)	(39,583		)
Net current tax asset	$	23,098		$	8,867

Non-current tax assets:
Capital lease obligation basis difference	$	1,001		$	1,010
Rent expenses in excess of cash payments required	25,263			23,584
Deferred compensation	17,970			15,555
Other	4,574			3,620
Valuation allowance	(862		)	(1,637		)
	47,946			42,132
Non-current tax liabilities:
Depreciation	(47,219		)	(54,047		)
Capital lease assets basis difference	(511		)	(531		)
Other	(1,693		)	(1,381		)
	(49,423		)	(55,959		)
Net non-current tax liability	$	(1,477	)	$	(13,827	)

Net deferred tax asset (liability)	$	21,621		$	(4,960	)

We have evaluated the need for a valuation allowance for all or a portion of the deferred tax assets. With the exception of state tax credit carryforwards, we believe that all of the deferred tax assets will more likely than not be realized through future earnings. We had state tax credit carryforwards of $2.6 million and $2.7 million as of December 29, 2012 and December 31, 2011, respectively, with varying dates of expiration between 2013 and 2020. We provided a valuation allowance of $0.9 million and $1.6 million as of December 29, 2012 and December 31, 2011, respectively, due to our uncertainty of utilizing these credits before their expiration dates. A reconciliation of the provision for income taxes to the amounts computed at the federal statutory rate is as follows (in thousands):



	2012			2011			2010
Tax provision at statutory rate	$	152,508		$	122,715		$	92,729
Tax effect of:
State income taxes, net of federal tax benefits	9,502			8,134			5,848
Permanent differences	(2,730		)	(2,973		)	(1,609		)
	$	159,280		$	127,876		$	96,968

The Company and its affiliates file income tax returns in the U.S. and various state and local jurisdictions. With few exceptions, we are no longer subject to federal, state and local income tax examinations by tax authorities for years before 2008. The IRS commenced an examination of the Company’s federal tax returns for 2006 and 2007 which was completed in February 2011, and no IRS adjustments were proposed. In 2012, the IRS commenced an audit of the 2010 federal tax return. Various states have completed an examination of our income tax returns for 2008 through 2010 with minimal adjustments.

The total amount of unrecognized tax benefits that, if recognized, would decrease the effective tax rate, is $4.7 million at December 29, 2012. In addition, we recognize current interest and penalties accrued related to these uncertain tax positions as interest expense, and the amount is not material to the Consolidated Statements of Income. The Company estimates the overall decrease in unrecognized tax benefits in the next twelve months will range between $0.6 million and $1.1 million. A reconciliation of the beginning and ending gross amount of unrecognized tax benefits (exclusive of interest and penalties) is as follows (in thousands):



	2012			2011			2010
Balance at beginning of year	$	5,774		$	4,801		$	4,084
Additions based on tax positions related to the current year	1,358			1,611			1,453
Additions for tax positions of prior years	—			—			—
Reductions for tax positions of prior years	(1,234		)	(638		)	(736		)
Reductions due to audit results	—			—			—
Balance at end of year	$	5,898		$	5,774		$	4,801