Income Taxes

The provision for income taxes from operations consisted of the following:



	Years Ended December 31,
(in thousands)	2016			2015			2014
Current
Federal	$	39,649		$	29,684		$	25,178
State	7,053			5,001			4,391
Foreign	3,333			3,568			4,041
Deferred	0
Federal	260			2,390			2,264
State	13			753			142
Foreign	(1,142		)	(605		)	(225		)
	$	49,166		$	40,791		$	35,791

Income and loss from operations before income taxes for the years ended December 31, 2016, 2015, and 2014, respectively, consisted of the following:



	Years Ended December 31,
(in thousands)	2016		2015		2014
Domestic	$	131,827	$	106,381	$	90,142
Foreign	7,073		2,298		9,180
	$	138,900	$	108,679	$	99,322

Reconciliations between the statutory federal income tax rates and the Company’s effective income tax rates as a percentage of income before income taxes for its operations were as follows:



	Years Ended December 31,
(in thousands)	2016		2015		2014
Federal tax rate	35.0	%	35.0	%	35.0	%
State taxes, net of federal benefit	3.4	%	3.3	%	3.0	%
Tax benefit of domestic manufacturing deduction	(2.5	)%	(2.3	)%	(2.4	)%
Change in valuation allowance	(0.1	)%	1.3	%	1.5	%
Difference between United States statutory and foreign local tax rates	(0.3	)%	0.2	%	(0.4	)%
Change in uncertain tax position	(0.2	)%	0.3	%	(0.8	)%
Other	0.1	%	(0.3	)%	0.1	%
Effective income tax rate	35.4	%	37.5	%	36.0	%

The tax effects of the significant temporary differences that constitute the deferred tax assets and liabilities at December 31, 2016 and 2015, respectively, were as follows:



	December 31,
(in thousands)	2016			2015
Deferred asset taxes
State tax	$	2,518		$	1,762
Workers’ compensation	1,381			1,777
Health claims	755			746
Vacation liability	1,485			1,410
Allowance for doubtful accounts	123			205
Inventories	6,833			6,112
Sales incentive and advertising allowances	1,126			963
Acquisition costs	528			—
Unrealized foreign exchange gain or loss	678			247
Stock-based compensation	5,550			5,629
Foreign tax credit carryforwards	1,288			1,345
Uncertain tax positions’ unrecognized tax benefits	104			134
Foreign tax loss carry forward	6,841			7,082
Other	1,259			1,433
	$	30,469		$	28,845
Less valuation allowances	(6,868		)	(7,576		)
	23,601			21,269

Deferred tax liabilities
Depreciation	$	(6,138	)	$	(5,265	)
Goodwill and other intangibles amortization	(14,126		)	(11,835		)
Tax effect on cumulative translation adjustment	(667		)	(974		)
Other	(744		)	(1,023		)
	(21,675		)	(19,097		)

Total Deferred tax	$	1,926		$	2,172

Prospective adoption of ASU 2015-17, in the first quarter of 2016, resulted in the Company offsetting all of its deferred income

tax assets and liabilities, as of January 1, 2016, by taxing jurisdiction and classifying those balances as noncurrent. The result was

$4.1 million being classified as "Other noncurrent assets," and a $1.9 million being classified as "Deferred income tax and other long-term liabilities." The offsetting of all of the Company's deferred income tax assets and liabilities as of December 31, 2016, by taxing jurisdiction, resulted in $4.3 million being classified as "Other noncurrent assets" and $2.4 million being classified as "Deferred income tax and other long-term liabilities."

At December 31, 2016, the Company had $30.8 million of pre-tax loss carryforwards in various foreign taxing jurisdictions, which includes approximately $4.3 million that were generated by the Company’s Beijing and Thailand subsidiaries that are in the process of liquidating. Tax loss carryforwards of $1.5 million, $1.2 million, $1.7 million, $1.5 million, $0.3 million, $92 thousand and $0.3 million will expire in 2017, 2018, 2019, 2020, 2021, 2022, and 2023 respectively, if not used. The remaining tax losses can be carried forward indefinitely.

At December 31, 2016, and 2015, the Company had deferred tax valuation allowances of $6.9 million and $7.6 million, respectively. The valuation allowance decreased $0.7 million and $0.8 million for the years ended December 31, 2016 and 2015, respectively.

The Company does not provide for federal income taxes on the undistributed earnings of its international subsidiaries because such earnings are reinvested and, in the Company’s opinion, will continue to be reinvested indefinitely. At December 31, 2016, 2015 and 2014, the Company had not provided for federal income taxes on undistributed earnings of $57.7 million, $51.6 million and $45.6 million, respectively, from its international subsidiaries. Should these earnings be distributed in the form of dividends or otherwise, the Company would be subject to both United States income taxes and withholding taxes in various international jurisdictions. These taxes may be partially offset by United States foreign tax credits. Determination of the related amount of unrecognized deferred United States income taxes is not practicable because of the complexities associated with this hypothetical calculation. United States federal income taxes are provided on the earnings of the Company’s foreign branches, which are included in the United States federal income tax return.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits in 2016, 2015 and 2014, respectively, was as follows, including foreign translation amounts:



Reconciliation of Unrecognized Tax Benefits	2016			2015			2014
Balance at January 1	$	1,107		$	1,307		$	3,456
Additions based on tax positions related to prior years	204			310			7
Reductions based on tax positions related to prior years	—			(514		)	(1,146		)
Additions for tax positions of the current year	155			191			165
	—			—			(680		)
Lapse of statute of limitations	(347		)	(187		)	(495		)
Balance at December 31	$	1,119		$	1,107		$	1,307

There are no tax positions included in the balance of unrecognized tax benefits at December 31, 2016 and 2014. A tax position of $0.2 million is included at December 31, 2015, which, if recognized, would reduce the effective tax rate.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense, which is a continuation of the Company’s historical accounting policy. During the years ended December 31, 2016, 2015 and 2014, accrued interest decreased by $61 thousand, $30 thousand and $0.2 million, respectively, as a result of the reversal of accrued interest associated with the lapses of statutes of limitations. The Company had accrued $0.2 million for each of the fiscal years ended 2016, 2015 and 2014, for the potential payment of interest, before income tax benefits.

At December 31, 2016, the Company remained subject to United States federal income tax examinations for the tax years 2013 through 2016. In addition, the Company remained subject to state, local and foreign income tax examinations primarily for the tax years 2011 through 2016.