NOTE

– TAXES ON INCOME

Provisions for federal, foreign and state income taxes in the consolidated statements of operations consisted of the following components:

	FISCAL YEAR
	2016			2015			2014
	(in thousands)
Current expense/(benefit):
Federal	$	6,886		$	1,524		$	224
Foreign		12,934			9,279			5,555
State		1,633			1,403			712

		21,453			12,206			6,491
Deferred expense/(benefit):
Federal		6,186			19,971			3,856
Foreign		(1,937	)		3,795			493
State		(728	)		(2,624	)		94

		3,521			21,142			4,443

	$	24,974		$	33,348		$	10,934

Income before taxes on income consisted of the following:

	FISCAL YEAR
	2016		2015		2014
	(in thousands)
U.S. operations	$	38,357	$	58,318	$	10,345
Foreign operations		40,779		47,448		25,397

	$	79,136	$	105,766	$	35,742

Deferred income taxes for the years ended

January

2017,

and

January

2016,

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.

The Company expects to utilize in its

2016

U.S. federal tax return

$18.0

million of its federal net operating loss carryforwards from share-based payment awards and has recorded a related tax benefit of

$6.3

million to additional paid-in capital in accordance with applicable accounting standards.

January

2017,

the Company had approximately

$14

million in U.S. federal net operating loss carryforwards with expiration dates through

2032,

of which

$14

million is from share-based payment awards. In accordance with applicable accounting standards, a financial statement benefit has not been recorded for the net operating loss carryforward related to the share-based payment awards. The Company’s foreign subsidiaries had approximately

$3.8

million in net operating loss carryforwards, the majority of which is available for an unlimited carryforward period. The Company expects to utilize all of its U.S. federal and foreign carryforwards prior to their expiration. The Company had approximately

$108.9

million in state net operating loss carryforwards relating to continuing operations with expiration dates through

2035.

The Company has provided a valuation allowance against

$40.2

million of such losses, which the Company does not expect to utilize. In addition, the Company has approximately

$58.7

million in state net operating loss carryforwards relating to discontinued operations against which a full valuation allowance has been provided.

The sources of the temporary differences and their effect on the net deferred tax asset are as follows:

	2016					2015
	ASSETS			LIABILITIES		ASSETS			LIABILITIES
	(in thousands)
Basis differences of property and equipment	$	0		$	14,419	$	0		$	16,254
Basis difference of intangible assets		978			0		0			368
Foreign currency		0			3,216		0			5,375
Net operating loss carryforwards		3,627			0		5,575			0
Valuation allowances on net operating loss carryforwards		(2,500	)		0		(4,457	)		0
Federal tax credits		5,711			0		4,580			0
Deferred compensation		26,546			0		26,352			0
Basis difference of inventory		4,009			0		2,390			0
Basis difference of prepaids, accruals and reserves		6,273			0		6,556			0
Pensions		3,435			0		1,075			0
Undistributed earnings from foreign subsidiaries not deemed to be indefinitely reinvested		0			1,704		0			1,226
Basis difference of other assets and liabilities		0			351		0			517

	$	48,079		$	19,690	$	42,071		$	23,740

Deferred tax assets and liabilities are included in the accompanying balance sheets as follows:

	FISCAL YEAR
	2016			2015
	(in thousands)
Deferred income taxes (current asset)	$	10,030		$	8,726
Deferred tax asset (non-current asset)		27,221			20,110
Deferred income taxes (non-current liabilities)		(8,862	)		(10,505	)
	$	28,389		$	18,331

Management believes, based on the Company’s history of taxable income and expectations for the future, that it is more likely than not that future taxable income will be sufficient to fully utilize the federal deferred tax assets at

January

2017.

As of

January

2017,

and

January

2016,

non-current deferred tax assets

were reduced by approximately

$5.0

million and

$14.2

million, respectively, of unrecognized tax benefits.

The Company’s effective tax rate was

31.6%,

31.5%

and

30.6%

for fiscal years

2016,

2015

and

2014,

respectively. The following summary reconciles income taxes at the U.S. federal statutory rate of

35%

to the Company’s actual income tax expense:

	FISCAL YEAR
	2016			2015			2014
	(in thousands)
Income taxes at U.S federal statutory rate	$	27,698		$	37,018		$	12,510
Increase (decrease) in taxes resulting from:
State income taxes, net of federal tax effect		1,861			3,003			57
Non-deductible business expenses		538			614			570
Non-deductible employee compensation		361			168			491
Tax effects of Company owned life insurance		(199	)		128			(395	)
Tax effects of undistributed earnings from foreign subsidiaries not deemed to be indefinitely reinvested		463			458			362
Foreign and U.S. tax effects attributable to foreign operations		(3,963	)		(3,347	)		(3,021	)
Valuation allowance effect – State NOL		(1,272	)		(3,797	)		468
Federal tax credits		(494	)		(352	)		0
Other		(19	)		(545	)		(108	)
Income tax expense	$	24,974		$	33,348		$	10,934

The Company does not provide for deferred U.S. income taxes on the undistributed earnings of its foreign subsidiaries that are considered to be indefinitely reinvested outside of the U.S. as determination of the amount of unrecognized deferred U.S. income tax liability related to the indefinitely reinvested earnings is not practicable because of the complexities associated with its hypothetical calculation. At

January

2017,

approximately

$279

million of undistributed earnings of the Company’s foreign subsidiaries are deemed to be indefinitely reinvested outside of the U.S., on which foreign withholding taxes of approximately

$5.9

million would be payable upon remittance. This amount represents the estimated accumulated earnings and profits for all foreign subsidiaries excluding subsidiaries within Canada. Any future dividend distributions of these foreign earnings

may

be subject to both U.S. federal and state income taxes, as adjusted for foreign tax credits, and withholding taxes payable.

January

2017,

the Company has provided for approximately

$1.6

million in U.S. federal income taxes and approximately

$0.2

million in foreign withholding taxes on approximately

$4.8

million of undistributed earnings from foreign subsidiaries within Canada that are not deemed to be indefinitely reinvested outside of the U.S.

The Company’s federal income tax returns are subject to examination for the years

2003

to the present. The Company files returns in numerous state and local jurisdictions and in general it is subject to examination by the state tax authorities for the years

2011

to the present. The Company files returns in numerous foreign jurisdictions and in general it is subject to examination by the foreign tax authorities for the years

2006

to the present.

As of

January

2017

and

January

2016,

the Company had

$27.9

million and

$28.3

million, respectively, of unrecognized tax benefits. If the

$27.9

million of unrecognized tax benefits as of

January

2017

are recognized, there would be a favorable impact on the Company’s effective tax rate in future periods. If the unrecognized tax benefits are not favorably settled,

$18.3

million of the total amount of unrecognized tax benefits would require the use of cash in future periods. The Company recognizes accrued interest and income tax penalties related to unrecognized tax benefits as a component of income tax expense. As of

January

2017,

the Company had accrued interest and penalties of

$1.4

million, which is included in the total unrecognized tax benefit noted above.

Management believes changes to our unrecognized tax benefits that are reasonably possible in the next

months will not have a significant impact on our financial positions or results of operations. The timing of the ultimate resolution of the Company’s tax matters and the payment and receipt of related cash is dependent on a number of factors, many of which are outside the Company’s control.

A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits is as follows:

	FISCAL YEAR
	201 6			201 5			201 4
	(in thousands)
Balance at beginning of year	$	28,271		$	27,301		$	27,361
Increases related to tax positions taken during the current year		690			641			875
Increases related to tax positions taken during the prior years		148			1,230			1,157
Decreases related to tax positions taken during the prior years		(695	)		(194	)		(697	)
Decreases related to settlements with taxing authorities		0			0			0
Decreases related to lapse of applicable statute of limitations		(403	)		(367	)		(919	)
Changes due to foreign currency translation		(123	)		( 340	)		(476	)
Balance at end of year	$	27,888		$	28,271		$	27,301