Taxes

Income Taxes. 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. Significant components of the consolidated deferred tax assets and liabilities were (in thousands):



Fiscal Year	2016			2015
Deferred income tax assets (liabilities):
Bad debt allowance	$	3,936		$	5,390
Returns allowance	5,464			8,187
Inventory	15,243			14,575
Warranty liabilities	3,244			2,922
Compensation	19,286			16,213
Accrued liabilities	7,276			7,079
Deferred rent	17,518			10,161
Unrealized exchange gains (losses)	(6,498		)	(2,486		)
State income tax and interest on tax contingencies	2,808			2,976
Fixed assets	(49,044		)	(52,782		)
Trade names and customer lists	(26,166		)	(26,502		)
Undistributed earnings of certain foreign subsidiaries	(53,761		)	(53,761		)
Foreign accruals	8,503			4,832
Loss carryforwards	20,898			13,501
Tax credit carryforwards	17,363			—
Valuation allowance	(19,415		)	(10,857		)
Other	529			3,989
Net deferred income tax assets (liabilities)	$	(32,816	)	$	(56,563	)
Total deferred income tax assets	$	23,061		$	18,602
Total deferred income tax liabilities	(55,877		)	(75,165		)
Net deferred income tax assets (liabilities)	$	(32,816	)	$	(56,563	)

Operating Loss Carryforwards. The balance sheet includes $18.7 million of net deferred tax assets for operating losses of foreign subsidiaries and $2.2 million of deferred tax assets for net operating losses from an acquired U.S. subsidiary. Valuation allowances have been recorded to reflect the estimated amount of deferred tax assets that may not be realized on these losses. The amounts and the fiscal year of expiration of the loss carryforwards are (in thousands):



Expires 2017 through 2021	$	33,413
Expires 2022 through 2026	8,911
Expires 2027 through 2031	2,403
Expires 2032 through 2036	42,358
Indefinite	13,450
Total loss carryforwards	$	100,535

The following table identifies income before income taxes for the Company's U.S. and non-U.S. based operations for the fiscal years indicated (in thousands):



Fiscal Year	2016			2015		2014
U.S	$	(72,249	)	$	24,864	$	169,079
Non-U.S	186,557			286,795		388,999
Total	$	114,308		$	311,659	$	558,078

The Company's provision for income taxes consisted of the following for the fiscal years indicated (in thousands):



Fiscal Year	2016			2015			2014
Current provision:
U.S. federal	$	2,111		$	10,666		$	84,669
Non-U.S	53,880			72,336			74,190
State and local	(1,482		)	1,180			10,582
Total current	54,509			84,182			169,441
Deferred provision (benefit):
U.S. federal	(20,216		)	1,798			5,124
Non-U.S	(5,584		)	(4,511		)	(3,622		)
State and local	(4		)	288			524
Total deferred	(25,804		)	(2,425		)	2,026
Provision for income taxes	$	28,705		$	81,757		$	171,467

The expected cash payments for current U.S. income tax expense for fiscal years 2016, 2015 and 2014 were reduced by approximately $3.3 million, $2.4 million and $4.7 million, respectively, as a result of tax deductions related to the exercise of non-qualified stock options and stock appreciation rights and the vesting of restricted stock and restricted stock units. The expected cash payments for current foreign tax expense for fiscal years 2016, 2015 and 2014 were reduced by $0.2 million, $0.3 million and $0.4 million, respectively, as a result of tax deductions related to the exercise of stock options and the vesting of restricted stock granted to foreign employees. The income tax benefits resulting from these stock-based compensation plans have been recorded to additional paid-in capital in the Company's consolidated balance sheets. Total deferred income tax expense (benefit) of $(25.8) million, $(2.4) million and $2.0 million for fiscal years 2016, 2015 and 2014, respectively, are included in deferred income taxes on the Company's consolidated statements of cash flows.

A reconciliation of the U.S. federal statutory income tax rate of 35.0% to the Company's effective tax rate is as follows:



Fiscal Year	2016		2015		2014
Tax at statutory rate	35.0	%	35.0	%	35.0	%
Non-deductible expenses	5.3		0.7		0.4
State, net of federal tax benefit	0.6		0.5		0.9
Foreign rate differential	(30.9	)	(15.6	)	(12.3	)
U.S. tax on foreign income	5.0		4.3		6.3
Income tax contingencies	0.3		0.9		0.7
Valuation allowances	8.1		1.4		(0.3	)
Return to provision true-up	1.7		(1.6	)	(0.1	)
Other	—		0.6		0.1
Provision for income taxes	25.1	%	26.2	%	30.7	%

Deferred U.S. federal income taxes and foreign withholding taxes are not recorded on undistributed earnings of certain foreign subsidiaries where management plans to continue reinvesting these earnings outside the U.S. The amount of undistributed earnings that would be subject to tax if distributed was approximately $959.0 million at December 31, 2016. Determining tax amounts that would be payable if these earnings were distributed to the U.S. parent company is not practicable.

The total amount of unrecognized tax benefits, excluding interest and penalties that would favorably impact the effective tax rate in future periods if recognized, was $20.6 million, $20.0 million and $12.8 million for fiscal years 2016, 2015 and 2014, respectively. The U.S. Internal Revenue Service has completed examinations of the Company's federal income tax returns through 2012. Fiscal years 2013-2016 remain open for federal income tax examination. The Company is also subject to examinations in various state and foreign jurisdictions for its 2010-2016 tax years, none of which the Company believes are significant, individually or in the aggregate. Tax audit outcomes and timing of tax audit settlements are subject to significant uncertainty.

The Company has classified uncertain tax positions as long-term income taxes payable unless such amounts are expected to be paid within twelve months from December 31, 2016. As of December 31, 2016, the Company had recorded $3.4 million of unrecognized tax benefits, excluding interest and penalties, for positions that could be settled within the next twelve months. Consistent with its past practice, the Company recognizes interest and/or penalties related to income tax overpayments and income tax underpayments in income tax expense and income taxes receivable/payable, respectively. The total amount of accrued income tax-related interest in the Company's consolidated balance sheets was $2.3 million and $2.2 million at December 31, 2016 and January 2, 2016, respectively. The total amount of accrued income tax-related penalties in the Company's consolidated balance sheets was $1.4 million and $1.8 million at December 31, 2016 and January 2, 2016, respectively. The Company accrued income tax-related interest expense of $0.1 million, $0.3 million and $0.7 million in fiscal years 2016, 2015 and 2014, respectively.

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits for the fiscal years indicated (in thousands):



Fiscal Year	2016			2015			2014
Balance at beginning of year	$	23,022		$	20,086		$	14,314
Gross increases tax positions in prior years	918			1,800			4,234
Gross decreases tax positions in prior years	(183		)	(9,282		)	(1,018		)
Gross increases—tax positions in current year	974			11,909			3,508
Settlements	(181		)	(583		)	(194		)
Lapse in statute of limitations	(1,106		)	(758		)	(617		)
Change due to currency revaluation	(45		)	(150		)	(141		)
Balance at end of year	$	23,399		$	23,022		$	20,086