INCOME TAXES

The components of income before taxes are as follows:



	Fiscal Year Ended
	January 28, 2017		January 30, 2016		January 31, 2015
	(In thousands)
Domestic	$	90,990	$	46,053	$	47,888
Foreign	56,023		43,329		31,987
Total income before provision for income taxes	$	147,013	$	89,382	$	79,875

The components of the Company's provision for income taxes consisted of the following:



	Fiscal Year Ended
	January 28, 2017			January 30, 2016			January 31, 2015
	(In thousands)
Current:
Federal⁽¹⁾	$	34,056		$	7,248		$	8,212
State and local⁽¹⁾	8,527			2,275			3,691
Foreign	11,473			9,809			5,457
	54,056			19,332			17,360
Deferred:
Federal	(8,068		)	9,649			5,260
State and local	(1,691		)	2,548			1,426
Foreign	380			(31		)	(1,059		)
	(9,379		)	12,166			5,627
Total provision for income taxes	$	44,677		$	31,498		$	22,987
Effective tax rate	30.4		%	35.2		%	28.8		%

(1) Excludes federal, state, and local tax benefits resulting from stock-based compensation arrangements. Such amounts were recorded in equity.


10.	INCOME TAXES (Continued)

A reconciliation between the calculated tax provision on income based on a U.S. federal statutory rate of 35% and the effective tax rate is as follows:



	Fiscal Year Ended
	January 28, 2017			January 30, 2016			January 31, 2015
	(In thousands)
Calculated income tax provision at U.S. federal statutory rate	$	51,455		$	31,284		$	27,956
State and local income taxes, net of federal benefit	4,443			3,052			3,326
Foreign tax rate differential ⁽¹⁾	(10,116		)	(9,744		)	(8,849		)
Non-deductible expenses	2,514			2,729			1,685
Unrecognized tax benefits	(1,673		)	3,892			807
Change in valuation allowance	19			399			(1,472		)
Other	(1,965		)	(114		)	(466		)
Total provision for income taxes	$	44,677		$	31,498		$	22,987

(1) The foreign tax rate differential is due to the Company having a lower foreign effective tax rate as compared to its U.S. federal statutory tax rate of 35%. The Company has substantial operations in both Hong Kong and Canada, which have lower statutory income tax rates as compared to the U.S. The Company's foreign effective tax rates for Fiscal 2016, Fiscal 2015 and Fiscal 2014 were 21.2%, 22.6% and 13.7%, respectively. This rate will fluctuate from year to year in response to changes in the mix of income by country as well as changes in foreign jurisdiction tax laws.

The tax effects of temporary differences which give rise to deferred tax assets and liabilities are as follows:



	January 28, 2017			January 30, 2016
	(In thousands)
Current Assets/(Liabilities):
Inventory	4,398			4,472
Reserves	17,283			15,965
Hedging transactions	(354		)	(223		)
	21,327			20,214
Prepaid expenses	(3,823		)	(4,728		)
Total current, net	17,504			15,486
Noncurrent Assets:
Property and equipment	(6,900		)	(6,855		)
Deferred rent	13,425			14,548
Equity compensation	16,093			9,757
Reserves	7,116			4,780
Net operating loss carryforwards and other tax credits	2,312			2,293
Total noncurrent, net	32,046			24,523
Valuation allowance	(2,312		)	(2,293		)
Net noncurrent	29,734			22,230
Total deferred tax asset, net	$	47,238		$	37,716

As of January 28, 2017, the Company has not provided Federal taxes on approximately $314.8 million of unremitted earnings of its foreign subsidiaries. The Company intends to reinvest these earnings to fund expansion in these and other markets outside the U.S. Accordingly, the Company has not provided any provision for income tax expense in excess of


10.	INCOME TAXES (Continued)

foreign jurisdiction income tax requirements relative to such unremitted earnings in the accompanying financial statements. Due to the complexities associated with the hypothetical calculation, including the availability of foreign tax credits, the Company has concluded it is not practicable to determine the unrecognized deferred tax liability related to the undistributed earnings.

The Company has foreign net operating loss carryforwards of approximately $5.9 million, which do not expire. The Company also has an Alternative Minimum Tax credit ("AMT") in Puerto Rico of approximately $0.8 million which does not expire.

Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in assessing the need for a valuation allowance. The Company has concluded that it is more likely than not that certain deferred tax assets cannot be used in the foreseeable future, principally the foreign net operating loss carryforwards and the AMT credit in Puerto Rico. Accordingly, a valuation allowance has been established for these tax benefits. However, to the extent that tax benefits related to these are realized in the future, the reduction of the valuation allowance will reduce income tax expense accordingly.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become realizable.

The Company's income taxes payable have been reduced by the tax benefits from employee stock plan awards. For stock options, the Company receives an income tax benefit calculated as the tax effect of the difference between the fair market value of the stock issued at the time of the exercise and the exercise price. For Deferred Awards and Performance Awards, the Company receives an income tax benefit upon the award's vesting equal to the tax effect of the underlying stock's fair market value.

Uncertain Tax Benefits

Tax positions are evaluated in a two-step process. The Company first determines whether it is more-likely-than-not that a tax position will be sustained upon examination. If a tax position meets the more-likely-than-not recognition threshold it is measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely to be realized upon ultimate settlement.

A reconciliation of the gross amounts of unrecognized tax benefits, excluding accrued interest and penalties, is as follows:



	January 28, 2017			January 30, 2016
	(In thousands)
Beginning Balance	$	8,381		$	5,479
Additions for current year tax positions	688			3,800
Additions for prior year tax positions	250			—
Reductions for prior year tax positions	(1,996		)	(242		)
Reductions related to settlements with taxing authorities	(46		)	(60		)
Reductions due to a lapse of the applicable statute of limitations	(1,141		)	(596		)
Additions related to foreign currency translation	190			—
Ending Balance	$	6,326		$	8,381

Approximately $7.3 million of unrecognized tax benefits at January 28, 2017 would affect the Company's effective tax rate if recognized. The Company believes it is reasonably possible that there may be a reduction of approximately $5.4 million of unrecognized tax benefits in the next 12 months as a result of settlements with taxing authorities and statute of limitations expirations.

The Company accrued interest and penalties related to unrecognized tax benefits as part of the provision for income taxes. At January 28, 2017 and January 30, 2016 accrued interest and penalties included in unrecognized tax benefits were


10.	INCOME TAXES (Continued)

approximately $1.0 million and $1.3 million, respectively. Interest, penalties and reversals, thereof, net of taxes, was a benefit of $0.3 million in Fiscal 2016 and a benefit of $0.4 million in each of Fiscal 2015 and Fiscal 2014.

The Company is subject to tax in the United States and foreign jurisdictions, including Canada and Hong Kong. The Company, joined by its domestic subsidiaries, files a consolidated income tax return for federal income tax purposes. The Company, with certain exceptions, is no longer subject to income tax examinations by U.S. federal, state and local or foreign tax authorities for tax years fiscal 2012 and prior.