(

)

Income Taxes

The Company

’s income before income taxes from domestic and foreign operations (which include the United Kingdom, Canada, Ireland, Denmark and China), are as follows (in thousands):

	2016			2015		2014
Domestic	$	9,733		$	13,854	$	12,973
Foreign		(4,424	)		4,044		3,051
Total income before income taxes	$	5,309		$	17,898	$	16,024

The components of the provision for income taxes are as follows (in thousands):

	2016			2015			2014

Current:
Federal	$	1,605		$	-		$	-
State		237			24			304
Foreign		(231	)		1,189			3,293
Deferred:
Federal		1,902			(9,697	)		-
State		1,230			(1,308	)		26
Foreign		(811	)		345			(1,961	)
Income tax expense (benefit)	$	3,932		$	(9,447	)	$	1,662

A reconciliation between the statutory federal income tax rate and the effective income tax rate is as follows (in thousands):

	2016			2015			2014

Income before income taxes	$	5,309		$	17,898		$	16,024
Statutory federal income tax rate		34	%		34	%		34	%
Income tax expense at statutory federal rate		1,805			6,085			5,448
State income taxes, net of federal tax benefit		968			371			310
Valuation allowance		576			(15,572	)		(5,415	)
Effect of lower foreign taxes		864			(622	)		(372	)
Adjustment for unrecognized tax positions		(77	)		67			397
Other items, net		(204	)		224			1,294
Income tax expense (benefit)	$	3,932		$	(9,447	)	$	1,662
Effective tax rate		74.1	%		(52.8	)%		10.4	%

In fiscal

2016,

the Company established a full valuation allowance of

$0.6

million on its deferred tax assets in certain foreign jurisdictions due to cumulative losses and uncertainty

about future earnings forecast. In fiscal

2011,

the Company had established a full valuation allowance on its deferred tax assets in the United States due to significant losses and uncertainty about future earnings forecast. As of

January

2016,

the Company recorded an income tax benefit of

$9.4

million primarily due to the reduction in the valuation allowances in the U.S. The valuation allowance in the U.S. was reduced because the weight of evidence regarding the future realizability of the deferred tax assets had become predominately positive and realization of the deferred tax assets was more likely than not. The positive evidence considered in our assessment of the realizability of the deferred tax assets included the generation of significant positive cumulative income in the U.S., the implementation of tax planning strategies, and projections of future taxable income. Based on its earnings performance trend, expected continued profitability and improvements in the Company’s financial condition; management determined it was more likely than not that all of our U.S. deferred tax assets would be realized. The negative evidence considered included historical losses in certain prior years; however, the positive evidence outweighed this negative evidence. In fiscal

2014,

the Company released approximately

$4.4

million of U.S. related valuation allowance, consistent with the level of income generated. Additionally, in fiscal

2014,

the Company recorded an income tax benefit of

$1.1

million due to the full release of the valuation allowances in foreign jurisdictions, primarily the UK and Canada.

Temporary differences that gave rise to deferred tax assets and liabilities are as follows (in thousands):

	2016			2015

Deferred tax assets:
Deferred revenue	$	5,004		$	5,129
Accrued rents		1,907			1,704
Net operating loss carryforwards		1,194			306
Intangible assets		1,040			1,349
Deferred compensation		1,739			1,022
Accrued compensation		620			1,545
Carryforward of tax credits		880			928
Receivable write-offs		604			1,317
Inventories		1,994			656
Other		1,209			3,306
Total gross deferred tax assets		16,191			17,262
Less: Valuation allowance		576			—
Total deferred tax assets, net of valuation allowance		15,615			17,262

Deferred tax liabilities:
Depreciation		(3,909	)		(3,494	)
Deferred expense		(3,318	)		(2,505	)
Other		(132	)		(399	)
Total deferred tax liabilities		(7,359	)		(6,398	)
Net deferred tax assets	$	8,256		$	10,864

Income taxes and remittance taxes have not been recorded on approximately $

6.3

million of undistributed earnings of foreign operations of the Company, because the Company intends to reinvest those earnings indefinitely. It is not practicable to estimate the income tax liability that might be incurred if such earnings were remitted to the U.S

As of

December

31,

2016,

the Company had total unrecognized tax benefits of $

1.0

million, of which approximately

$0.4

million would favorably impact the Company’s provision for income taxes if recognized. As of

January

2016,

the Company had total unrecognized tax benefits of

$0.7

million, of which approximately

$0.2

million would favorably impact the Company’s provision for income taxes if recognized

. The Company reviews its uncertain tax positions periodically and accrues interest and penalties accordingly. Accrued interest and penalties included in other liabilities in the Consolidated Balance Sheets were

$0.1

million and

$0.4

million as of

December

31,

2016,

and

January

2016,

respectively. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of the provision for income taxes within the Consolidated Statements of Income. For the year ended

December

31,

2016,

the Company recognized a benefit of

$0.3

million for interest and penalties. For the year ended

January

2016,

the Company recognized expense of

$0.1

million for interest and penalties.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

Balance as of January 3, 2015	$	719
Addition to reserve		—
Audit settlement release		—
Lapse of statute		—
Balance as of January 2, 2016		719
Increases for prior year tax positions		248
Decrease for prior year tax positions		(25	)
Increases for current year tax positions		26
Audit settlement release		(7	)
Lapse of statute of limitations		—
Balance as of December 31, 2016	$	961

Management estimates it is reasonably possible that the amount of unrecognized tax benefits c

ould decrease by as much as

$0.9

million in the next

twelve

months as a result of the resolution of audits currently in progress involving issues common to multinational corporations and the lapsing of the statute of limitations.

The following tax years remain open in the Company

’s major taxing jurisdictions as of

December

31,

2016:

United States (Federal)		2013 through 2016
United Kingdom		2009 through 2016