9. INCOME TAXES

The components of income (loss) before income taxes are as follows:

	Fiscal Years

	2013			2012			2011
	(Dollars in thousands)
Income (loss) before income taxes:
U.S.	$	(25,177	)	$	(35,430	)	$	(49,669	)
International		35,275			10,116			5,736

	$	10,098		$	(25,314	)	$	(43,933	)

The (benefit) provision for income taxes consists of:

	Fiscal Years

	2013			2012			2011
	(Dollars in thousands)
Current:
U.S.	$	(21,053	)	$	(1,095	)	$	(4,409	)
International		707			2,261			1,106
Deferred:
U.S.		10,405			(5,519	)		(16,283	)
International		(83	)		(77	)		3,253

	$	(10,024	)	$	(4,430	)	$	(16,333	)

The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory rate to earnings (loss) before income taxes, as a result of the following:

	Fiscal Years

	2013			2012			2011
U.S. statutory rate (benefit)		35.0	%		(35.0	)%		(35.0	)%
State income taxes, net of federal income tax benefit		3.6			3.5			(1.7	)
Tax effect of goodwill impairment		—			47.7			6.5
Foreign income taxes at other than U.S. rates		4.1			(0.5	)		4.7
Tax effect of foreign currency translation gain		(107.0	)		—			—
Work Opportunity and Welfare-to-Work Tax Credits		(42.8	)		(19.4	)		(8.8	)
Other, net		7.8			(13.8	)		(2.9	)

		(99.3	)%		(17.5	)%		(37.2	)%

The 7.8 percent of Other, net in fiscal year 2013 includes the rate impact of meals and entertainment expense disallowance, donated inventory, unrecognized tax benefits, and miscellaneous items of 4.9, (3.4), 5.5, and 0.8 percent, respectively.

The (13.8) percent of Other, net in fiscal year 2012 includes the rate impact of meals and entertainment expense disallowance, unrecognized tax benefits, and miscellaneous items of 2.1, (9.1), and (6.8) percent, respectively.

The (2.9) percent of Other, net in fiscal year 2011 includes the rate impact of unrecognized tax benefits and miscellaneous items of (1.8) and (1.1) percent, respectively.

The components of the net deferred tax assets and liabilities are as follows:

	June 30,

	2013			2012
	(Dollars in thousands)
Deferred tax assets:
Deferred rent	$	12,953		$	14,725
Payroll and payroll related costs		34,073			43,717
Net operating loss carryforwards		2,484			759
Tax credit carryforwards		4,366			—
Salon asset impairment		720			5,038
Inventories		7,920			2,118
Federal and state benefit on uncertain tax positions		1,888			2,113
Allowance for doubtful accounts/notes		7,004			5,144
Insurance		6,106			6,439
Other		11,745			6,362

Total deferred tax assets	$	89,259		$	86,415

Deferred tax liabilities:
Depreciation	$	(20,684	)	$	(17,831	)
Amortization of intangibles		(72,635	)		(61,139	)
Deferred debt issuance costs		(2,303	)		(4,336	)
Other		(4,903	)		(2,102	)

Total deferred tax liabilities	$	(100,525	)	$	(85,408	)

Net deferred tax (liability) asset	$	(11,266	)	$	1,007

At June 30, 2013, the Company has tax effected state and U.K. net operating loss carryforwards of approximately $1.8 million (net of $0.1 million of valuation allowance) and $0.7 million, respectively. The state loss carryforwards expire from 2016 to 2033. The U.K. loss carryforward has no expiration.

The Company's tax credit carryforward of $4.4 million will expire in 2033.

As of June 30, 2013, undistributed earnings of international subsidiaries of approximately $25.2 million were considered to have been reinvested indefinitely and, accordingly, the Company has not provided for U.S. income taxes on such earnings. It is not practicable for the Company to determine the amount of unrecognized deferred tax liabilities on these indefinitely reinvested earnings.

The Company files tax returns and pays tax primarily in the U.S., Canada, the U.K., and Luxembourg as well as states, cities, and provinces within these jurisdictions. In the U.S., fiscal years 2010 and beyond remain open for federal tax audit. The Company's U.S. federal income tax returns for the fiscal years 2010 and 2011 are currently under examination by the Internal Revenue Service. For state tax audits, the statute of limitations generally spans three to four years, resulting in a number of states remaining open for tax audits dating back to fiscal year 2009. However, the Company is under audit in a number of states in which the statute of limitations has been extended for fiscal years 2007 and forward. Internationally, including Canada, the statute of limitations for tax audits varies by jurisdiction, but generally ranges from three to five years. A rollforward of the unrecognized tax benefits is as follows:

	Fiscal Years

	2013			2012			2011
	(Dollars in thousands)
Balance at beginning of period	$	4,381		$	13,493		$	16,856
Additions based on tax positions related to the current year		44			482			796
(Reductions)/additions based on tax positions of prior years		7,132			(7	)		(759	)
Reductions on tax positions related to the expiration of the statute of limitations		(1,403	)		(1,571	)		(2,718	)
Settlements		(139	)		(8,016	)		(682	)

Balance at end of period	$	10,015		$	4,381		$	13,493

If the Company were to prevail on all unrecognized tax benefits recorded, a benefit of approximately $2.8 million would be recorded in the effective tax rate. Interest and penalties associated with unrecognized tax benefits are recorded within income tax expense. During the fiscal years 2013, 2012, and 2011 we recorded interest and penalties of approximately $0.7, $(1.2), and $(0.6) million, respectively, for the fiscal years additions to the accrual net of the respective reversal of previously accrued interest and penalties. As of June 30, 2013, the Company had accrued interest and penalties related to unrecognized tax benefits of $2.2 million. This amount is not included in the gross unrecognized tax benefits noted above.

It is reasonably possible that the amount of the unrecognized tax benefit with respect to certain of our unrecognized tax positions will increase or decrease during the next fiscal year. However, an estimate of the amount or range of the change cannot be made at this time.