11. INCOME TAXES

The components of income (loss) before income taxes for Fiscal 2014, Fiscal 2013 and Fiscal 2012 were as follows (in thousands):


	Fiscal 2014			Fiscal 2013			Fiscal 2012
U.S.	$	(261,478	)	$	(116,323	)	$	(58,274	)
Foreign		55,759			59,939			73,938

Total income (loss) before income taxes	$	(205,719	)	$	(56,384	)	$	15,664

The components of income tax expense (benefit) for Fiscal 2014, Fiscal 2013 and Fiscal 2012 were as follows (in thousands):


	Fiscal 2014			Fiscal 2013			Fiscal 2012
Federal:
Current	$	—		$	—		$	—
Deferred		(5,099	)		(1,837	)		(852	)

		(5,099	)		(1,837	)		(852	)

State
Current		790			785			762
Deferred		655			65			49

		1,445			850			811

Foreign
Current		11,306			12,375			14,707
Deferred		(1,393	)		(2,465	)		(284	)

		9,913			9,910			14,423

Total income tax expense	$	6,259		$	8,923		$	14,382

The provision for income taxes for Fiscal 2014, Fiscal 2013 and Fiscal 2012 differs from an amount computed at the statutory federal rate as follows:


	Fiscal 2014			Fiscal 2013			Fiscal 2012
U.S. income taxes at statutory federal rate		35.0	%		35.0	%		35.0	%
Foreign rate differential		8.4			26.2			(114.3	)
State and local income taxes, net of federal tax benefit		0.9			3.3			(17.2	)
Change in accrual for estimated tax contingencies		0.3			3.3			(5.4	)
Goodwill impairment		(21.0	)		—			—
Earnings of foreign subsidiaries		(13.0	)		(19.4	)		86.5
Valuation allowance		(9.2	)		(66.0	)		93.5
Other, net		(4.4	)		1.8			13.7

		(3.0	)%		(15.8	)%		91.8	%

In Fiscal 2014, the Company’s income tax expense was $6.3 million and its effective income tax rate was (3.0)%, including income tax expense of $18.8 million related to the effect of changes to its valuation allowance on deferred tax assets. In Fiscal 2013, the Company’s income tax expense was $8.9 million and its effective income tax rate was (15.8)%, including income tax expense of $37.2 million related to the effect of changes to its valuation allowance on deferred tax assets. In Fiscal 2012, the Company’s income tax expense was $14.4 million and its effective income tax rate was 91.8%, including income tax expense of $14.7 million related to the effect of changes to its valuation allowance on deferred tax assets.

The effective income tax rates for Fiscal 2014, Fiscal 2013 and Fiscal 2012 also differ from the statutory federal income tax rate of 35% due to the overall geographic mix of losses in jurisdictions with higher income tax rates and income in jurisdictions with lower income tax rates, the impact of earnings of foreign subsidiaries, including repatriation to fund interest payments, and other permanent book to tax return adjustments.

The tax effects on the significant components of the Company’s net deferred tax liability as of January 31, 2015 and February 1, 2014 are as follows (in thousands):


	January 31, 2015			February 1, 2014
Deferred tax assets:
Tax carryforwards	$	196,195		$	195,502
Compensation and benefits		9,620			9,369
Deferred rent		7,888			7,842
Depreciation		3,881			1,998
Accrued expenses		4,468			3,836
Gift cards		3,265			2,857
Inventory		2,426			1,318
Other		—			407

Total gross deferred tax assets		227,743			223,129
Valuation allowance		(190,103	)		(171,570	)

Total deferred tax assets, net		37,640			51,559

Deferred tax liabilities:
Tradename intangibles		106,105			110,569
Earnings from foreign subsidiaries		21,701			31,452
Debt related		9,224			12,944
Lease rights		5,539			7,099
Other		73			215

Total deferred tax liabilities		142,642			162,279

Net deferred tax liability	$	(105,002	)	$	(110,720	)

The deferred tax assets and deferred tax liabilities as of January 31, 2015 and February 1, 2014 are as follows (in thousands):


	January 31, 2015			February 1, 2014
Current deferred tax assets, net of valuation allowance	$	4,662		$	4,600
Non-current deferred tax assets		3,551			4,244
Non-current deferred tax liabilities, net of valuation allowance		(113,215	)		(119,564	)

Net deferred tax liability	$	(105,002	)	$	(110,720	)

The amount and expiration dates of operating loss and tax credit carryforwards as of January 31, 2015 are as follows (in thousands):


	Amount		Expiration Date
U.S. federal net operating loss carryforwards	$	127,419		2029 – 2035
Non-U.S. net operating loss carryforwards		14,981		2016 – 2032
Non-U.S. net operating loss carryforwards		10,245		Indefinite
State net operating loss carryforwards		13,617		2015 – 2035
U.S. foreign tax credits		29,933		2020 – 2025

Total	$	196,195

In assessing the need for a valuation allowance recorded against 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. Ultimately, the realization of deferred tax assets will depend on the existence of future taxable income. In making this assessment, management considers the scheduled reversal of deferred tax liabilities, past operating results, estimates of future taxable income and tax planning opportunities.

In Fiscal 2014, the Company recorded an increase of $17.4 million in valuation allowance against deferred tax assets in the U.S. In Fiscal 2013, the Company recorded an increase of $32.0 million in valuation allowance against deferred tax assets in the U.S. In Fiscal 2012, the Company recorded an increase of $9.4 million in valuation allowance against deferred tax assets in the U.S. In Fiscal 2008, the Company recorded a charge of $95.8 million to establish a valuation allowance against its deferred tax assets in the U.S. The Company concluded that a valuation allowance was appropriate in light of the significant negative evidence, which was objective and verifiable, such as cumulative losses in recent fiscal years in our U.S. operations. While the Company’s long-term financial outlook in the U.S. remains positive, the Company concluded that its ability to rely on its long-term outlook as to future taxable income was limited due to the relative weight of the negative evidence from its recent U.S. cumulative losses. The Company’s conclusion regarding the need for a valuation allowance against U.S. deferred tax assets could change in the future based on improvements in operating performance, which may result in the full or partial reversal of the valuation allowance. The foreign valuation allowances relate to net operating loss carryforwards that, in the opinion of management, are more likely than not to expire unutilized.

The net change in the total valuation allowances in Fiscal 2014, Fiscal 2013 and Fiscal 2012 was an increase of $18.8 million, an increase of $33.6 million and an increase of $13.7 million, respectively.

U.S. income taxes have not been recognized on the balance of accumulated unremitted earnings from the Company’s foreign subsidiaries as of January 31, 2015 of $179.2 million, as these accumulated undistributed earnings are considered reinvested indefinitely. For Europe subsidiaries, this amount is based on the balance maintained in local currency of the Company’s accumulated unremitted earnings as of February 2, 2008 converted into U.S. dollars at foreign exchange rates in effect on January 31, 2015. Quantification of the deferred tax liability, if any, associated with indefinitely reinvested earnings is not practicable. The Company recognized U.S. income tax expense of $26.7 million, $10.9 million and $13.5 million in Fiscal 2014, Fiscal 2013 and Fiscal 2012 earnings, respectively, of its foreign subsidiaries. The Company expects that future earnings from its foreign subsidiaries will be repatriated.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):


	Fiscal 2014			Fiscal 2013			Fiscal 2012
Beginning balance	$	9,820		$	11,229		$	12,435
Additions based on tax positions related to the current year		1,037			1,354			1,241
Additions for tax positions of prior years		—			—			—
Reductions for tax positions of prior years		—			(18	)		—
Statute expirations		(1,593	)		(2,745	)		(2,026	)
Settlements		(41	)		—			(421	)

Ending balance	$	9,223		$	9,820		$	11,229

The amount of unrecognized tax benefits as of January 31, 2015 of $9.2 million, if recognized, would favorably affect the Company’s effective tax rate. These unrecognized tax benefits are classified as “Unfavorable lease obligations and other long-term liabilities” in the Company’s Consolidated Balance Sheets.

Interest and penalties related to unrecognized tax benefits are included in income tax expense. The Company had $2.7 million and $2.8 million for the payment of interest and penalties accrued as of January 31, 2015 and February 1, 2014, respectively, and are classified as “Unfavorable lease obligations and other long-term liabilities” in the Company’s Consolidated Balance Sheets. For Fiscal 2014, Fiscal 2013 and Fiscal 2012, the Company recognized $(0.1) million, $(0.4) million and $(0.2) million, respectively, in interest and penalties.

In April 2011, the Company received from the Canada Revenue Agency withholding tax assessments for 2003 through 2007 of approximately $5.3 million, including penalties and interest. In July 2014, the Company received notice from the Canada Revenue Agency that the withholding tax assessments for 2003 through 2007, including penalties and interest, have been reversed.

The Company files income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. The Company is no longer subject to U.S. federal income tax examinations for years before Fiscal 2010, and with few exceptions, for state, and local, or non-U.S. income tax examinations for years before Fiscal 2006. We have also concluded tax examinations in our significant foreign tax jurisdictions including the United Kingdom through Fiscal 2008, France through Fiscal 2004, and Canada through Fiscal 2006.

The Company does not anticipate a significant change to the total amount of unrecognized tax benefits within the next 12 months.