NOTE I — INCOME TAXES

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


	Year Ended December 31,
	2015			2014		2013
	(in thousands)
Domestic	$	22,096		$	10,251	$	26,470
Foreign		(3,765	)		3,611		(3,233	)

Total income before income taxes and equity in earnings	$	18,331		$	13,862	$	23,237

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


	Year Ended December 31,
	2015			2014			2013
				(in thousands)
Current:
Federal	$	5,584		$	4,709		$	8,996
State and local		1,879			1,284			1,707
Foreign		604			1,691			747
Deferred		(1,440	)		(1,859	)		(2,275	)

Income tax provision	$	6,627		$	5,825		$	9,175

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,
	2015		2014
	(in thousands)
Deferred income tax assets:
Deferred rent expense	$	4,028	$	3,686
Stock options		4,179		3,348
Inventory		1,298		1,312
Operating loss carry-forward		2,213		2,073
Accounts receivable allowances		217		406
Accrued compensation		867		897
Other		2,820		2,911

Total deferred income tax assets	$	15,622	$	14,633

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


	December 31,
	2015			2014
	(in thousands)
Deferred income tax liabilities:
Depreciation and amortization	$	(3,121	)	$	(3,461	)
Intangibles		(12,380	)		(12,549	)
Equity in earnings		(154	)		(504	)

Total deferred income tax liabilities		(15,655	)		(16,514	)


Net deferred income tax asset (liability)		(33	)		(1,881	)

Valuation allowance		(2,077	)		(1,897	)

Net deferred income tax (liability) asset	$	(2,110	)	$	(3,778	)

The Company has generated various state net operating loss carryforwards of which, $13.4 million remained at December 31, 2015 that begin to expire in 2016. The Company has net operating losses in foreign jurisdictions of $7.5 million at December 31, 2015 that begin to expire in 2020. The reduction in the deferred tax liabilities is primarily due to the enactment of lower corporate income tax rates in the United Kingdom, from 20% in 2015 to 18% in 2020. The valuation allowance which remained as of December 31, 2015 relates to certain state and foreign 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,
	2015			2014			2013

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		5.3			4.9			5.5
Foreign rate differences		(8.6	)		(2.7	)		(1.1	)
Non-deductible expenses		5.5			6.4			2.8
Other		(1.0	)		(1.6	)		(2.7	)

Provision for income taxes		36.2	%		42.0	%		39.5	%

The estimated values of the Company’s gross uncertain tax positions at December 31, 2015, 2014 and 2013 are liabilities of $157,000, $572,000 and $351,000, respectively, and consist of the following:


	Year Ended December 31,
	2015			2014			2013
	(in thousands)
Balance at January 1	$	(572	)	$	(351	)	$	(301	)
Additions based on tax positions related to the current year		(15	)		—			(31	)
Additions for tax positions of prior years		—			(221	)		(164	)
Settlements		430			—			145

Balance at December 31	$	(157	)	$	(572	)	$	(351	)

The Company had approximately $42,000 and $40,000, net of federal and state tax benefit, accrued at December 31, 2015 and 2014, 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 $149,000 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 $76,000 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 2013. 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, 2015, the periods subject to examination by the Company’s major state jurisdictions are the years ended 2011 through 2014.