(7)	Income Taxes

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

	2015			2014			2013

Current:
Federal	$	-		$	-		$	-
State		24			304			(68	)
Foreign		1,189			3,293			6
Deferred:
Federal		(9,697	)		-			-
State		(1,308	)		26			56
Foreign		345			(1,961	)		-
Income tax expense (benefit)	$	(9,447	)	$	1,662		$	(6	)

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

	2015			2014			2013

Income (loss) before income taxes	$	17,898		$	16,024		$	(2,118	)
Statutory federal income tax rate		34	%		34	%		34	%
Income tax expense (benefit) at statutory federal rate		6,085			5,448			(720	)
State income taxes, net of federal tax benefit		371			310			151
Valuation allowance		(15,572	)		(5,415	)		386
Effect of lower foreign taxes		(622	)		(372	)		497
Adjustment for unrecognized tax positions		67			397			(70	)
Other items, net		224			1,294			(250	)
Income tax expense (benefit)	$	(9,447	)	$	1,662		$	(6	)
Effective tax rate		(52.8	)%		10.4	%		0.3	%

In 2011, the Company established a full valuation allowance on its deferred taxes in the U.S. due to significant losses and uncertainty about future earnings forecast. As of January 2, 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. for the three-year period ending with fiscal 2015, 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 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):

	2015			2014

Deferred tax assets:
Deferred revenue	$	5,129		$	4,833
Accrued rents		1,704			1,746
Net operating loss carryforwards		306			613
Intangible assets		1,349			1,489
Deferred compensation		1,022			1,019
Accrued compensation		1,545			3,058
Carryforward of tax credits		928			4,250
Receivable write-offs		1,317			1,436
Inventories		656			661
Other		3,306			3,270
		17,262			22,375
Less: Valuation allowance		-			15,572
Total deferred tax assets		17,262			6,803

Deferred tax liabilities:
Depreciation		(3,494	)		(1,021	)
Other		(2,904	)		(2,975	)
Total deferred tax liabilities		(6,398	)		(3,996	)
Net deferred tax asset	$	10,864		$	2,807

Income taxes and remittance taxes have not been recorded on approximately $14.0 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 January 2, 2016, the Company had total unrecognized tax benefits of $1.1 million

compared to $1.0 million as of January 3, 2015. The Company reviews its uncertain tax positions periodically and accrues interest and penalties accordingly. Included in the unrecognized tax benefits are interest and penalties of $0.4 million and $0.3 million for 2015 and 2014, respectively.

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

Balance as of December 28, 2013	$	560
Addition to reserve		200
Audit settlement release		(29	)
Lapse of statute		(12	)
Balance as of January 3, 2015		719
Addition to reserve		-
Audit settlement release		-
Lapse of statute		-
Balance as of January 2, 2016	$	719

As of January 2, 2016, approximately $0.7 million of the unrecognized tax benefits would impact the Company’s provision for income taxes and effective tax rate if recognized. Management does not anticipate that the total amount of unrecognized tax benefits will increase or decrease significantly in the next twelve months.

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

	2015		2014		2013
Domestic	$	13,854	$	12,973	$	(1,134	)
Foreign		4,044		3,051		(984	)
Total	$	17,898	$	16,024	$	(2,118	)

The following tax years remain open in the Company’s major taxing jurisdictions as of January 2, 2016:

United States (Federal)		2012 through 2015
United Kingdom		2009 through 2015
Canada		2012 through 2015
Ireland		2007 through 2015
Denmark		2015