Income Taxes

Income (loss) from continuing operations before income taxes is derived from (in thousands):



	Year Ended
	October 30, 2016			November 1, 2015			November 2, 2014
U.S. Domestic	$	(20,643	)	$	(63,205	)	$	(2,148	)
International	8,248			48,065			3,987
Total	$	(12,395	)	$	(15,140	)	$	1,839

Income tax expense (benefit) by taxing jurisdiction consists of (in thousands):



	Year Ended
	October 30, 2016			November 1, 2015			November 2, 2014
Current:
U.S. Federal	$	86		$	90		$	(36	)
U.S. State and local	186			(1,616		)	978
International	2,444			5,200			1,996
Total current	$	2,716		$	3,674		$	2,938
Deferred:
U.S. Federal	$	—		$	—		$	—
U.S. State and local	(190		)	634			225
International	(351		)	338			2,063
Total deferred	(541		)	972			2,288
Income tax expense	$	2,175		$	4,646		$	5,226

The difference between the income tax provision on income (loss) and the amount computed at the U.S. federal statutory rate is due to (in thousands):



	Year Ended
	October 30, 2016			November 1, 2015			November 2, 2014
U.S. Federal statutory rate	$	(4,338	)	$	(5,299	)	$	643
U.S. State income tax, net of U.S. Federal tax benefits	513			(1,435		)	530
International permanent differences	(110		)	(4,293		)	(489		)
International tax rate differentials	(1,291		)	(7,046		)	345
U.S. tax on international income	3,136			(1,118		)	1,787
General business credits	(4,287		)	(3,839		)	(5,642		)
Meals and entertainment	209			531			770
Other, net	(160		)	942			(294		)
Change in valuation allowance for dispositions	—			(4,237		)	—
Change in valuation allowance for deferred tax assets	8,503			30,440			7,576
Total	$	2,175		$	4,646		$	5,226

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, and also include operating loss carryforwards. The significant components of the Company’s deferred tax assets and liabilities are as follows (in thousands):



	October 30, 2016			November 1, 2015
Deferred tax assets:
Net operating loss carryforwards	$	62,670		$	58,909
Capital loss carryforwards	21,131			31,411
U.S. federal tax credit carryforwards	47,866			41,271
Purchased intangible assets	—			(49		)
Deferred income	10,714			—
Compensation accruals	6,170			5,653
Other, net	7,813			6,413
Total deferred tax assets	156,364			143,608
Less valuation allowance	(144,863		)	(136,323		)
Deferred tax assets, net	11,501			7,285

Deferred tax liabilities:
Unremitted earnings from foreign subsidiaries	3,356			4,046
Software development costs	5,226			2,794
Accelerated tax depreciation and amortization	—			741
Other, net	3,914			1,225
Total deferred tax liabilities	12,496			8,806
Net deferred tax asset (liability)	$	(995	)	$	(1,521	)

Balance sheet classification
Current assets	$	—		$	837
Non-current assets	2,142			1,107
Current liabilities	—			(240		)
Non-current liabilities	(3,137		)	(3,225		)
Net deferred tax asset (liability)	$	(995	)	$	(1,521	)

In November 2015, the FASB issued Accounting Standards Update ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. The amendments in this update simplify the presentation of deferred income taxes and require that deferred tax liabilities and assets be classified as non-current in a classified statement of financial position. The Company has early adopted ASU 2015-17 prospectively beginning in the first quarter of fiscal 2016. Other than the revised balance sheet presentation of deferred taxes from current to non-current, the adoption of this ASU did not have a material impact to our consolidated financial statements. At November 1, 2015, current deferred tax assets are included in Other current assets, non-current deferred tax assets are included in Other assets, excluding current portion and current deferred tax liabilities are included in Accrued insurance and other in the Consolidated Balance Sheets. At October 30, 2016, all liabilities were classified as non-current.

At October 30, 2016, the Company has available unused U.S. federal net operating loss (“NOL”) carryforwards of $145.1 million, U.S. state NOL carryforwards of $184.6 million, international NOL carryforwards of $11.0 million and capital loss carryforwards of $55.4 million. As of October 30, 2016, the U.S. federal NOL carryforwards will expire at various dates between 2031 and 2036, the U.S. state NOL carryforwards expire at various dates between 2020 and 2036, the international NOL carryforwards expire at various dates beginning in 2017 (with some indefinite) and capital loss carryforwards expire in 2021. At October 30, 2016, the undistributed earnings of the Company’s non-U.S. subsidiaries are not intended to be permanently invested outside of the U.S. and therefore U.S. deferred taxes have been provided.

A valuation allowance has been recognized due to the uncertainty of realization of the loss carryforwards and other deferred tax assets. Beginning in fiscal 2010, the Company’s cumulative U.S. domestic and certain non-U.S. results for each three-year period were a loss. Accordingly, the Company recorded a full valuation allowance against its net U.S. domestic and certain net non-U.S. deferred tax assets as a non-cash charge to income tax expense. The three-year cumulative loss continued in fiscal 2016, 2015, and 2014 so the Company maintained a full valuation allowance against its net U.S. domestic and certain net non-U.S. deferred tax assets resulting in a total valuation allowance of $144.9 million and $136.3 million for fiscal 2016 and fiscal 2015, respectively. In reaching this conclusion, the Company considered the U.S. domestic demand and recent operating losses causing the Company to be in a three-year cumulative loss position. Management believes that the remaining deferred tax assets, primarily related to international locations, are more likely than not to be realized based upon consideration of all positive and negative evidence, including scheduled reversal of deferred tax liabilities and tax planning strategies determined on a jurisdiction by jurisdiction basis.

The Company recognizes income tax benefits for tax positions determined more likely than not to be sustained upon examination based on the technical merits of the positions. The following table sets forth the change in the accrual for uncertain tax positions, excluding interest and penalties (in thousands):



	October 30, 2016			November 1, 2015
Balance, beginning of year	$	5,215		$	7,329
Decrease related to current year tax provisions	52			(411		)
Settlements	—			(879		)
Lapse of statute of limitations	(30		)	(824		)
Total	$	5,237		$	5,215

Of the total unrecognized tax benefits at October 30, 2016 and November 1, 2015, approximately $2.5 million and $1.1 million, respectively, would affect the Company’s effective income tax rate, if and when recognized in future years. The amount accrued for related potential interest and penalties at October 30, 2016 and November 1, 2015 was $1.5 million and $1.3 million, respectively. The Company does not currently anticipate that its existing reserves related to uncertain tax positions as of October 30, 2016 will significantly increase or decrease in subsequent periods; however, various events could cause the Company’s current expectations to change in the future.

The Company is subject to taxation at the federal, state and local levels in the U.S. and in various international jurisdictions. With few exceptions, the Company is generally no longer subject to examination by the U.S. federal, state, local or non-U.S. income tax authorities for years before fiscal 2004. The Company is currently under examination by the IRS for U.S. Federal amended income tax returns for fiscal 2004 – 2010. The Company is currently under examination by the Canada Revenue Authority for tax years 2008 – 2010 and 2013 – 2014. These audits are not expected to result in a material impact on the Company’s financial statements.

The following describes the open tax years, by major tax jurisdiction, as of October 30, 2016:



United States - Federal	2004-present
United States - State	2004-present
Canada	2008-present
United Kingdom	2011-present