Income Taxes

The components of income before income taxes are as follows:



	2017		2016		2015
Domestic	$	124,472	$	110,526	$	81,785
Foreign	47,855		60,474		90,681
	$	172,327	$	171,000	$	172,466

The components of provision for income taxes for all periods presented were as follows:

Note M - Income Taxes (continued)



	2017			2016			2015
Current:
Federal	$	56,836		$	47,655		$	24,838
State and local	5,746			6,063			4,136
Foreign	10,773			3,270			13,960
	73,355			56,988			42,934
Deferred:
Federal	(22,061		)	(7,050		)	16,976
State and local	800			153			1,961
Foreign	1,095			(365		)	(3,060		)
	(20,166		)	(7,262		)	15,877
	$	53,189		$	49,726		$	58,811

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law making significant changes to the Internal Revenue Code of 1986, as amended. Changes include, but are not limited to, a reduction in the U.S. corporate statutory tax rate from 35% to 21% effective for tax years beginning after December 31, 2017, the transition from a worldwide tax system to a territorial regime, and a one-time transition tax on the deemed repatriation of cumulative foreign earnings as of December 31, 2017. The Company has calculated its best estimate of the impact of the Tax Act in its year end income tax provision in accordance with its understanding of the Tax Act and guidance available as of the filing of this Annual Report on Form 10-K, and as a result recorded $7,599 as an additional net income tax benefit in the fourth quarter of 2017, the period in which the legislation was enacted. The provisional amount related to the remeasurement of certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future resulted in a $2,315 expense. The provisional amount, comprised of a one-time transition tax on the mandatory deemed repatriation of foreign earnings, resulted in a $9,914 benefit (consisting of a $21,994 tax expense, offset by a $31,908 tax benefit from reversal of existing deferred tax liability on unremitted earnings of foreign subsidiaries) based on cumulative foreign earnings of $310,134. In accordance with Staff Accounting Bulletin No. 118, any adjustments to these provisional amounts will be reported as a component of the Income Tax Provision (Benefit) during the reporting period in which any such adjustments are determined, all of which will be reported no later than the fourth quarter of 2018. The Company continues to evaluate the impacts of the Tax Act on its indefinite reinvestment assertion, as further discussed below.

The Company is subject to the provisions of the FASB ASC 740-10, Income Taxes, which requires that the effect on deferred tax assets and liabilities of a change in tax rates be recognized in the period the tax rate change was enacted. However, in December of 2017, the SEC staff issued Staff Accounting Bulletin 118 which provides that companies that have not completed their accounting for the effects of the Tax Act but can determine a reasonable estimate of those effects should include a provisional amount based on their reasonable estimate in their financial statements. The Company, as explained below, has made reasonable estimates in order to account for the effects of the Tax Act.

Although the $7,599 net benefit represents what the Company believes is a reasonable estimate of the impact of the income tax effects of the Tax Act as of December 31, 2017, it should be considered provisional. In light of the complexity of the Tax Act, the Company anticipates additional interpretive guidance from the U.S. Treasury and adjustments during the one year measurement period are probable. Once the Company finalizes certain tax positions when it files its 2017 U.S. tax return it will be able to conclude whether any further adjustments are required to its deferred tax balances in the U.S., as well as to the total liability associated with the one-time mandatory tax.

Note M - Income Taxes (continued)

A reconciliation between taxes computed at the Federal statutory rate and the effective tax rate is as follows:



	December 31,
	2017		2016		2015
Income taxes at federal statutory rate	35.0	%	35.0	%	35.0	%
Effects of foreign operations	(4.5	)	(5.3	)	(3.6	)
Stock-based compensation	(2.2	)	(3.0	)	—
State and local income taxes - net of federal income tax benefit	2.0		2.0		1.7
Nondeductible items	0.5		0.2		0.1
Impact of tax reform	(4.4	)	—		—
Receivable Adjustment	2.7		—		—
Other	1.8		0.2		0.9
Effective rate	30.9	%	29.1	%	34.1	%

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



	December 31,
	2017			2016
Deferred taxes assets
Receivable allowances	7,315			8,800
Inventory	901			2,202
Unrealized loss	321			177
Accrued expenses	1,796			751
Deferred compensation	11,071			17,569
Deferred rent	3,737			5,327
Net carryforwards	300			1,172
Other	3,842			3,515
Gross deferred tax assets	29,283			39,513

Deferred tax liabilities
Depreciation and amortization	(16,210		)	(19,264		)
Unremitted earnings of foreign subsidiaries	(2,422		)	(31,262		)
Amortization of goodwill	(7,883		)	(6,640		)
Gross deferred tax liabilities	(26,515		)	(57,166		)

Net deferred tax assets (liabilities)	$	2,768		$	(17,653	)

Note M - Income Taxes (continued)

The Company applies the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse.

In accordance with accounting guidance, the Company has opted to classify interest and penalties that would accrue according to the provisions of relevant tax law as income tax expense on the Consolidated Statements of Income. The Company determines the amount of interest expense to be recognized by applying the applicable statutory rate of interest to the difference between the tax position recognized and the amount previously taken or expected to be taken on a tax return. The Company's tax years 2014 through 2017 remain open to examination by most taxing authorities. During 2017, the U.S. Internal Revenue Service ("IRS") completed its audit of the Company's 2014 U.S. income tax return. The Company does not have any material unrecognized tax benefits recorded as of December 31, 2017 and 2016.

The Company's consolidated financial statements provide for any related tax liability on amounts that may be repatriated from foreign operations, aside from undistributed earnings of certain of the Company's foreign subsidiaries that are intended to be indefinitely reinvested in operations outside the U.S. The deferred tax liability of $2,422 at December 31, 2017 reflects the withholding and state and local tax on amounts that may be repatriated from foreign operations. The Company continues to analyze the impact of the Tax Act on its indefinite reinvestment assertion, and as of December 31, 2017 has recorded a provisional estimate for the potential taxes related to the one-time mandatory tax.