NOTE I — INCOME TAXES

The components of income before income taxes, equity in earnings and extraordinary item are as follows:


	Year Ended December 31,
	2014		2013			2012
	(in thousands)
Domestic	$	10,251	$	26,470		$	20,609
Foreign		3,611		(3,233	)		(535	)

Total income before income taxes and equity in earnings	$	13,862	$	23,237		$	20,074

The provision for income taxes (before equity in earnings) consists of:


	Year Ended December 31,
	2014			2013			2012
	(in thousands)
Current:
Federal	$	4,709		$	8,996		$	6,691
State and local		1,284			1,707			761
Foreign		1,691			747			503
Deferred		(1,859	)		(2,275	)		(2,747	)

Income tax provision	$	5,825		$	9,175		$	5,208

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 Company’s deferred income tax assets are as follows:


	December 31,
	2014		2013
	(in thousands)
Deferred income tax assets:
Deferred rent expense	$	3,686	$	3,694
Stock options		3,348		3,237
Inventory		1,312		1,317
Operating loss carry-forward		2,073		2,140
Accounts receivable allowances		406		192
Accrued compensation		897		758
Other		2,911		1,831

Total deferred income tax assets	$	14,633	$	13,169

Significant components of the Company’s net deferred income tax (liability) asset are as follows:


	December 31,
	2014			2013
	(in thousands)
Deferred income tax liabilities:
Depreciation and amortization	$	(3,461	)	$	(3,826	)
Intangibles		(12,549	)		(5,162	)
Equity in earnings		(504	)		(805	)

Total deferred income tax liabilities		(16,514	)		(9,793	)

Net deferred income tax (liability) asset		(1,881	)		3,376

Valuation allowance		(1,897	)		(1,213	)

Net deferred income tax (liability) asset	$	(3,778	)	$	2,163

The Company has generated various state net operating loss carryforwards of which, $14.0 million remains at December 31, 2014 that begin to expire in 2015. The Company has net operating losses in foreign jurisdictions of $6.9 million at December 31, 2014 that begin to expire in 2020. The increase in the deferred tax liabilities is primarily due to the 2014 acquisition of Kitchen Craft, which included approximately $8.8 million of deferred tax liabilities related to the intangible assets acquired. The valuation allowance which remains as of December 31, 2014 relates to certain state net operating losses.

The provision for income taxes (before equity in earnings) differs from the amounts computed by applying the applicable federal statutory rates as follows:


	Year Ended December 31,
	2014			2013			2012
Provision for federal income taxes at the statutory rate		35.0	%		35.0	%		35.0	%
Increases (decreases):
State and local income taxes, net of Federal income tax benefit		4.9			5.5			3.2
Foreign rate differences		(2.7	)		(1.1	)		(1.8	)
Non-deductible expenses		6.4			2.8			1.2
Reduction of deferred tax liabilities related to the prior year		—			—			(11.6	)
Other		(1.6	)		(2.7	)		(0.1	)

Provision for income taxes		42.0	%		39.5	%		25.9	%

The estimated values of the Company’s gross uncertain tax positions at December 31, 2014, 2013 and 2012 are liabilities of $572,000, $351,000 and $301,000, respectively, and consist of the following:


	Year Ended December 31,
	2014			2013			2012
	(in thousands)
Balance at January 1	$	(351	)	$	(301	)	$	(134	)
Additions based on tax positions related to the current year		—			(31	)		—
Additions for tax positions of prior years		(221	)		(164	)		(167	)
Settlements		—			145			—

Balance at December 31	$	(572	)	$	(351	)	$	(301	)

The Company had approximately $40,000 and $71,000, net of federal and state tax benefit, accrued at December 31, 2014 and 2013, respectively, for the payment of interest. The Company’s policy for recording interest and penalties is to record such items as a component of income taxes.

If the Company’s tax positions are ultimately sustained, the Company’s liability, including interest, would be reduced by $530,000, all of which would impact the Company’s tax provision. On a quarterly basis, the Company evaluates its tax positions and revises its estimates accordingly. The Company believes that it is reasonably possible that $420,000 of its tax positions will be resolved within the next twelve months.

The Company is no longer subject to U.S. Federal income tax examinations for the years prior to 2011. The Company has identified the following jurisdictions as “major” tax jurisdictions: U.S. Federal, California, Massachusetts, Illinois, New York, New Jersey and the United Kingdom. At December 31, 2014, the periods subject to examination for the Company’s major state jurisdictions are the years ended 2010 through 2013.