13. Taxes

MKHL is incorporated in the British Virgin Islands and is generally not subject to taxation. MKHL’s subsidiaries are subject to taxation in the United States and various other foreign jurisdictions which are aggregated in the “Non-U.S,” information captioned below.

Income (loss) before provision for income taxes consisted of the following (in thousands):


	Fiscal Years Ended
	March 30, 2013		March 31, 2012		April 2, 2011

United States	$	538,607	$	227,514	$	134,197
Non-U.S.		88,520		21,302		(978	)

Total income before provision for income taxes	$	627,127	$	248,816	$	133,219

The provision for income taxes was as follows (in thousands):


	Fiscal Years Ended
	March 30, 2013			March 31, 2012			April 2, 2011
Current
U.S. Federal	$	179,014		$	79,690		$	30,494
U.S. State		32,249			20,916			11,527
Non-U.S.		15,040			8,575			6,249

Total current		226,303			109,181			48,270

Deferred
U.S. Federal		1,246			(4,128	)		9,950
U.S. State		2,088			(3,595	)		2,057
Non-U.S.		(112	)		(6	)		436

Total deferred		3,222			(7,729	)		12,443

Total provision for income taxes	$	229,525		$	101,452		$	60,713

The following table summarizes the significant differences between the United States Federal statutory tax rate and the Company’s effective tax rate for financial statement purposes:


	Fiscal Years Ended
	March 30, 2013			March 31, 2012			April 2, 2011

Federal tax at 35% statutory rate		35.0	%		35.0	%		35.0	%
State and local income taxes, net of federal benefit		3.6	%		4.8	%		7.1	%
Differences in tax effects on foreign income		–3.1	%		–1.3	%		1.9	%
Foreign tax credit		–0.2	%		–0.6	%		–1.1	%
Liability for uncertain tax positions		0.5	%		0.2	%		0.3	%
Effect of changes in valuation allowances on deferred tax assets		0.3	%		1.8	%		2.5	%
Other		0.5	%		0.9	%		–0.1	%

		36.6	%		40.8	%		45.6	%

Significant components of the Company’s deferred tax assets (liabilities) consist of the following (in thousands):


	March 30, 2013			March 31, 2012
Deferred tax assets
Inventories	$	8,469		$	5,185
Payroll related accruals		1,188			1,123
Deferred rent		16,209			11,677
Net operating loss carryforwards		8,508			8,142
Stock compensation		8,909			7,777
Deferred revenue		—			3,993
Other		2,331			1,464

		45,614			39,361
Valuation allowance		(8,746	)		(8,233	)

Total deferred tax assets		36,868			31,128

Deferred tax liabilities
Goodwill and intangibles		(14,780	)		(1,222	)
Depreciation		(20,927	)		(20,801	)
Other		(1,455	)		(308	)

Total deferred tax liabilities		(37,162	)		(22,331	)

Net deferred tax (liability) assets	$	(294	)	$	8,797

The Company maintains valuation allowances on deferred tax assets applicable to subsidiaries in jurisdictions for which separate income tax returns are filed and where realization of the related deferred tax assets from future profitable operations is not reasonably assured. Deferred tax valuation allowances were increased by approximately $1.6 million in Fiscal 2013, $4.4 million in Fiscal 2012, and $3.3 million in Fiscal 2011. As a result of the attainment and expectation of achieving profitable operations in certain countries comprising the Company’s European operations and certain state jurisdictions in the United States, for which deferred tax valuation allowances had been previously established, the Company released valuation allowances amounting to approximately $1.1 million in Fiscal 2013, $0.2 million in Fiscal 2012, and $0.9 million in Fiscal 2011.

The Company has non-U.S. net operating loss carryforwards of approximately $51.7 million that will begin to expire in 2016.

As of March 30, 2013, the Company has accrued a liability of approximately $7.1 million related to uncertain tax positions, which includes accrued interest, which is included in other long-term liabilities in the consolidated balance sheets.

The total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate was approximately $6.6 million at March 30, 2013, and approximately $1.8 million at March 31, 2012. A reconciliation of the beginning and ending amounts of unrecognized tax benefits, excluding accrued interest, for Fiscal 2013 and Fiscal 2012, are presented below (in thousands):


	March 30, 2013			March 31, 2012

Unrecognized tax benefits beginning balance	$	1,758		$	939
Additions related to prior period tax positions		3,318			246
Additions related to current period tax positions		2,482			573
Decreases from prior period positions		(930	)		—

Unrecognized tax benefits ending balance	$	6,628		$	1,758

The Company classifies interest expense and penalties related to unrecognized tax benefits as components of the provision for income taxes. Interest expense recognized in the consolidated statements of operations for Fiscal 2013 and Fiscal 2012 was approximately $0.3 million and $0.1 million, respectively.

The total amount of unrecognized tax benefits relating to the Company’s tax positions is subject to change based on future events, including, but not limited to, the settlements of ongoing audits and/or the expiration of applicable statutes of limitations. The Company files income tax returns in the United States, for federal, state, and local purposes, and in certain foreign jurisdictions. With few exceptions, the Company is no longer subject to examinations by the relevant tax authorities for years prior to its fiscal year ended March 28, 2009.

The total amount of undistributed earnings of United States and other non-U.S. subsidiaries as of March 30, 2013 was approximately $671.1 million. It is the Company’s intention to permanently reinvest undistributed earnings of its United States and non-U.S. subsidiaries and thereby indefinitely postpone their remittance. Accordingly, no provision has been made for withholding taxes or income taxes which may become payable if undistributed earnings are paid as dividends.