NOTE 10: Income Taxes

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


	Year ended
	November 3, 2013		October 28, 2012		October 30, 2011

U.S. Domestic	$	(27,273)	$	(18,008)	$	3,511
International, principally Europe		(3,133)		6,796		11,770

Total	$	(30,406)	$	(11,212)	$	15,281

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


	Year ended
	November 3, 2013		October 28, 2012		October 30, 2011

Current:
U.S. Federal	$	(146)	$	(558)	$	991
State and local		(378)		75		(528)
International, principally Europe		2,675		1,068		4,122

Total current	$	2,151	$	585	$	4,585


Deferred:
U.S. Federal	$	-	$	-	$	-
State and local		-		-		(2,500)
International, principally Europe		(1,682)		1,806		(2,433)

Total deferred		(1,682)		1,806		(4,933)

Income tax expense (benefit)	$	469	$	2,391	$	(348)

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


	Year ended
	November 3, 2013		October 28, 2012		October 30, 2011

U.S. federal statutory rate	$	(10,642)	$	(3,924)	$	5,349
State income tax, net of U.S. federal tax benefits		(1,463)		(95)		495
Income from international sources		119		2,127		5,312
Foreign permanent differences		(1,539)		(286)		841
International tax rate differentials		14		98		(1,274)
General business credits		(4,977)		(2,967)		(5,363)
Meals and entertainment		987		1,713		2,013
Foreign tax credit		-		-		(1,857)
Other, net		1,258		(770)		1,732
Change in valuation allowance for deferred tax assets		16,712		6,495		(7,596)

Total	$	469	$	2,391	$	(348)

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):


	November 3, 2013		October 28, 2012

Deferred tax assets:
Net operating loss carryforwards	$	55,130	$	35,163
US federal tax credit carryforwards		27,676		20,018
Purchased intangible assets		13,363		15,683
Deferred income		10,418		13,809
Compensation accruals		7,996		7,949
Accelerated tax depreciation and amortization		-		1,538
Other accruals, reserves and allowances		548		519
Other, net		3,704		5,585

Total deferred tax assets		118,835		100,264
Less valuation allowance		(100,376)		(82,952)

Deferred tax assets, net	$	18,459	$	17,312


	November 3, 2013		October 28, 2012

Deferred tax liabilities:
Unremitted earnings from foreign subsidiaries	$	8,769	$	8,974
Software development costs		883		891
Other, net		4,783		5,139

Total deferred tax liabilities		14,435		15,004

Net deferred tax asset	$	4,024	$	2,308


Balance sheet classification
Current assets	$	1,014	$	1,321
Non-current assets		9,286		6,019
Current liabilities		(4,574)		(2,273)
Non-current liabilities		(1,702)		(2,759)

Net deferred tax asset	$	4,024	$	2,308

Current deferred tax assets are included in Other Current Assets, non-current deferred tax assets are included in Prepaid Insurance and Other Assets and current deferred tax liabilities are included in Accrued Insurance and Other in the Consolidated Balance Sheets.

At November 3, 2013, the Company has available unused U.S. federal net operating loss (NOL) carryforwards of $102.6 million, U.S. state NOL carryforwards of $162.1 million, and international NOL carryforwards of $40.6 million. As of November 3, 2013, the U.S. federal NOL carryforwards will expire at various dates between 2031 and 2033, the U.S. state NOL carryforwards expire at various dates between 2031 and 2033, and the international NOL carryforwards expire at various dates with some indefinite. At November 3, 2013, the undistributed earnings of the Company’s non-U.S. subsidiaries are not intended to be permanently invested outside of the U.S., therefore, U.S. deferred taxes have been provided on the unremitted earnings.

A valuation allowance has been recognized due to the uncertainty of realization of the loss carryforwards and other deferred tax assets. Beginning in fiscal year 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 cumulative loss continued in fiscal years 2011, 2012, and 2013 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 $100.4 million and $83.0 million for fiscal 2013 and fiscal 2012, respectively. In reaching this conclusion, the Company considered the U.S. domestic demand for contingent staffing, software systems and other services and a decline in recent operating results which led to 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):


	November 3, 2013		October 28, 2012

Balance, beginning of year	$	11,072	$	10,287
Increase related to current year tax provisions		73		1,069
Settlements		(313)		-
Lapse of statute of limitations		(1,636)		(284)

Total	$	9,196	$	11,072

Of the total unrecognized tax benefits at November 3, 2013 and October 28, 2012, approximately $4.0 million and $5.9 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 November 3, 2013 and October 28, 2012 was $2.2 million and $2.5 million, respectively. The Company does not currently anticipate that its existing reserves related to uncertain tax positions as of November 3, 2013 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 level 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 has been notified that the IRS will be auditing the Company’s U.S. Federal amended income tax returns for fiscal years 2004 – 2010. The audit is expected to start in fiscal 2014 and is not expected to have a material impact on the Company’s financial statements. The Company is currently under examination by the Canada Revenue Authority for tax years 2006-2010.

The following describes the open tax years, by major tax jurisdiction, as of November 3, 2013:


		United States - Federal		2004-present
		United States - State		2004-present
		Canada		2006-present
		Germany		2006-present
		United Kingdom		2006-present