Income Taxes

12 Months Ended

Sep. 29, 2018

The reconciliation of the provision for income taxes to the amount computed by applying the U.S. federal statutory tax rate to earnings before income taxes is as follows:



	2018			2017			2016
Earnings before income taxes:
Domestic	$	137,247		$	77,007		$	82,848
Foreign	46,590			104,704			90,012
Total	$	183,837		$	181,711		$	172,860
Federal statutory income tax rate	24.5		%	35.0		%	35.0		%
Increase (decrease) in income taxes resulting from:
Transition tax on foreign earnings	16.8		%	—		%	—		%
Revaluation of deferred taxes	(6.0		)%	—		%	—		%
Withholding taxes	4.0		%	—		%	—		%
Reversal of indefinite reinvestment assertion	5.6		%	—		%	—		%
R&D and foreign tax credits	(4.2		)%	(3.8		)%	(30.6		)%
Divestiture impacts	—		%	(3.2		)%	—		%
Foreign tax rates	(0.7		)%	(2.4		)%	(2.7		)%
Equity-based compensation	(0.7		)%	(1.2		)%	—		%
Export and manufacturing incentives	(0.3		)%	(0.9		)%	(1.0		)%
Change in valuation allowance for deferred taxes	5.7		%	(0.4		)%	0.9		%
Change in enacted tax rates	—		%	—		%	(0.9		)%
Repatriated earnings	—		%	—		%	26.8		%
State taxes, net of federal benefit	1.9		%	0.4		%	0.5		%
Other	0.8		%	(0.8		)%	0.5		%
Effective income tax rate	47.4		%	22.7		%	28.5		%

The Tax Cuts and Jobs Act (the "Act") of 2017 was enacted on December 22, 2017. It reduces the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. As of September 29, 2018, we have not completed the accounting for the tax effects of enactment of the Act; however, as described below, we have made a reasonable estimate of the effects on the one-time transition tax, withholding taxes on earnings deemed to be repatriated and existing deferred tax balances. These amounts are provisional and subject to change as the determination of the impact of the income tax effects will require additional analysis of historical records, annual data and further interpretation of the Act from yet to be issued U.S. Treasury regulations.

During 2018, we recorded a $30,795 one-time transition tax on undistributed foreign earnings deemed to be repatriated and a tax charge of $10,383 as an additional provision for taxes on undistributed earnings not considered to be permanently reinvested. No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax, or any additional outside basis difference inherent in these entities, as these amounts continue to be indefinitely reinvested in foreign operations. Determining the amount of unrecognized deferred tax liability related to any remaining undistributed foreign earnings not subject to the transition tax and additional outside basis difference in these entities is not practicable. These charges are partially offset by a $10,946 benefit due to the remeasurement of deferred tax assets and liabilities arising from a lower U.S. corporate tax rate, which took into account our decision to accelerate pension contributions into our 2017 pension plan year. This allows the pension contribution tax deduction to be taken in our 2017 federal income tax return which is taxed at the 35% federal rate.

At September 29, 2018, foreign tax benefit carryforwards total $33,479. Domestic benefit carryforwards representing state tax losses total $11,980. We also have $4,303 of state tax credit carryforwards. Some of these tax benefit carryforwards do not expire and can be used to reduce current taxes otherwise due on future earnings of those subsidiaries. The change in the valuation allowance relates to tax benefit carryforwards reflecting recent and projected financial performance, tax planning strategies and statutory tax carryforward periods.

During 2018, we repatriated $235,263 of available earnings and profits from various foreign subsidiaries after the enactment of the Act. The tax expense associated with the repatriation was partially offset by foreign tax credits as provided by the Act governing the one-time transition tax. During 2016, we repatriated $90,937 of earnings from various foreign subsidiaries and the tax expense was completely offset by foreign tax credits.

The components of income taxes are as follows:



	2018			2017			2016
Current:
Federal	$	20,376		$	6,259		$	12,812
Foreign	35,515			24,162			29,794
State	705			122			2,373
Total current	56,596			30,543			44,979
Deferred:
Federal	33,612			11,624			10,078
Foreign	(7,029		)	(1,986		)	(4,734		)
State	4,030			1,120			(1,096		)
Total deferred	30,613			10,758			4,248
Income taxes	$	87,209		$	41,301		$	49,227

Realization of deferred tax assets is dependent, in part, upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers projected future taxable income and tax planning strategies in making its assessment of the recoverability of deferred tax assets.

The tax effects of temporary differences that generated deferred tax assets and liabilities are as follows:



	September 29, 2018			September 30, 2017
Deferred tax assets:
Benefit accruals	$	125,566		$	204,017
Inventory reserves	27,678			33,879
Tax benefit carryforwards	16,211			9,598
Contract loss reserves not currently deductible	11,028			15,994
Other accrued expenses	6,670			17,689
Total gross deferred tax assets	187,153			281,177
Less valuation allowance	(15,181		)	(4,775		)
Total net deferred tax assets	$	171,972		$	276,402
Deferred tax liabilities:
Differences in bases and depreciation of property, plant and equipment	$	125,132		$	169,562
Pension	75,989			93,602
Total gross deferred tax liabilities	201,121			263,164
Net deferred tax assets (liabilities)	$	(29,149	)	$	13,238

Deferred tax assets and liabilities are reported in separate captions on the consolidated balance sheets.

We have no material unrecognized tax benefits which, if ultimately recognized, will reduce our annual effective tax rate.

We are subject to income taxes in the U.S. and in various states and foreign jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require the application of significant judgment. With few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities in significant jurisdictions for years before 2015. The statute of limitations in several jurisdictions will expire in the next twelve months and we will have no unrecognized tax benefits recognized if the statute of limitations expires without the relevant taxing authority examining the applicable returns.

We record interest and penalties related to unrecognized tax benefits in income tax expense. We had accrued interest and penalties of $710 and $567 at September 29, 2018 and September 30, 2017, respectively. We expensed interest of $143 and $106 for 2018 and 2017, respectively.