Income Taxes

The domestic and foreign components of income (loss) before income tax expense for fiscal 2017, 2016 and 2015 were as follows (in thousands):



	2017			2016			2015
U.S.	$	(35,209	)	$	(26,796	)	$	(32,480	)
Foreign	157,032			114,190			138,775
	$	121,823		$	87,394		$	106,295

Income tax expense (benefit) for fiscal 2017, 2016 and 2015 were as follows (in thousands):



	2017			2016			2015
Current:
Federal	$	78		$	—		$	—
State	33			(15		)	(397		)
Foreign	10,016			11,312			12,957
	10,127			11,297			12,560
Deferred:
Federal	77			—			—
State	38			24			(399		)
Foreign	(481		)	(354		)	(198		)
	(366		)	(330		)	(597		)
	$	9,761		$	10,967		$	11,963

The following is a reconciliation of the federal statutory income tax rate to the effective income tax rates reflected in the Consolidated Statements of Comprehensive Income for fiscal 2017, 2016 and 2015:



	2017		2016		2015
Federal statutory income tax rate	35.0	%	35.0	%	35.0	%
Increase (decrease) resulting from:
Permanent differences	1.2		1.6		1.3
Foreign tax rate differences	(39.9	)	(36.3	)	(38.0	)
Disregarded entity benefit	(0.9	)	(1.8	)	(1.2	)
Dividend repatriation	—		32.9		—
Valuation allowances	12.2		(18.7	)	16.5
Other, net	0.4		(0.1	)	(2.3	)
Effective income tax rate	8.0	%	12.6	%	11.3	%

The Company recorded income tax expense of $9.8 million, $11.0 million and $12.0 million for fiscal 2017, 2016 and 2015, respectively.

The effective tax rate for fiscal 2017 was lower than the effective tax rate for fiscal 2016 primarily due to an increase in income before taxes in lower tax-rate jurisdictions and a tax benefit related to incremental deductible expenses in a jurisdiction where the Company pays income taxes. The effective tax rate for fiscal 2016 is higher than that of fiscal 2015 primarily as a result of the overall decrease in income before taxes in jurisdictions where the Company does not pay taxes.

During fiscal 2017, the Company recorded a $14.9 million addition to its valuation allowance relating to continuing losses in certain jurisdictions within the AMER and EMEA regions.

During fiscal 2016, the Company repatriated $100.0 million of current year foreign earnings from the APAC region to the U.S., which had no income statement impact due to U.S. net operating losses, the use of U.S. tax credits and the reversal of the related valuation allowance. The repatriation does not impact the permanently reinvested assertions made by the Company regarding prior period foreign earnings as the remittance was distributed exclusively from current year foreign earnings. The Company does not have a history of repatriating foreign earnings by way of a taxable dividend and considers the fiscal 2016 remittance to be an isolated occurrence. Without tax reform, the Company does not anticipate a similar repatriation in the foreseeable future.

During fiscal 2015, the Company recorded a $17.5 million addition to its valuation allowance related to continuing losses in certain jurisdictions within the AMER and EMEA regions.

The components of the net deferred income tax assets as of September 30, 2017 and October 1, 2016, were as follows (in thousands):



	2017			2016
Deferred income tax assets:
Loss/credit carryforwards	$	44,831		$	24,017
Inventories	7,710			7,527
Accrued benefits	25,811			25,493
Allowance for bad debts	319			461
Other	2,732			2,822
Total gross deferred income tax assets	81,403			60,320
Less valuation allowances	(61,668		)	(41,002		)
Deferred income tax assets	19,735			19,318
Deferred income tax liabilities:
Property, plant and equipment	14,443			14,400
Other	—			84
Deferred income tax liabilities	14,443			14,484
Net deferred income tax assets	$	5,292		$	4,834

During the first fiscal quarter of 2017, the Company adopted ASU 2016-09. Upon adoption, the Company recognized no net impact to its fiscal 2017 opening retained earnings balance as an incremental $4.9 million net operating loss carryforward related to tax deductions in excess of compensation expense for stock options was fully offset by an increase to the valuation allowance.

During fiscal 2017, the Company’s valuation allowance increased by $20.7 million. This increase is the result of increases to the valuation allowances against the net deferred tax assets in the AMER region of $18.4 million and in the EMEA region of $2.3 million.

As of September 30, 2017, the Company had approximately $181.5 million of pre-tax state net operating loss carryforwards that expire between fiscal 2018 and 2038. These state net operating losses have a full valuation allowance against them.

During fiscal 2017, tax legislation was adopted in various jurisdictions. None of the legislative changes are expected to have a material impact on the Company's consolidated financial condition, results of operations or cash flows.

The Company has been granted a tax holiday for a foreign subsidiary in the APAC region. This tax holiday will expire on December 31, 2024, and is subject to certain conditions with which the Company expects to comply. During fiscal 2017, 2016 and 2015, the tax holiday resulted in tax reductions of approximately $37.5 million ($1.11 per basic share, $1.08 per diluted share), $27.1 million ($0.81 per basic share, $0.79 per diluted share) and $29.9 million ($0.89 per basic share, $0.87 per diluted share), respectively.

The Company does not provide for taxes that would be payable if undistributed earnings of foreign subsidiaries were remitted because the Company considers these earnings to be permanently reinvested. The aggregate undistributed earnings of the Company’s foreign subsidiaries for which a deferred income tax liability has not been recorded was approximately $990.7 million as of September 30, 2017. If such earnings were repatriated, additional tax expense may result, although the calculation of such additional taxes is not practicable at this time.

The Company has approximately $3.1 million of uncertain tax benefits as of September 30, 2017. The Company has classified these amounts in the Consolidated Balance Sheets as "Other liabilities" (noncurrent) in the amount of $0.8 million and an offset to "Deferred income taxes" (noncurrent asset) in the amount of $2.3 million. The Company has classified these amounts as "Other liabilities" (noncurrent) and "Deferred income taxes" (noncurrent asset) to the extent that payment is not anticipated within one year.

The following is a reconciliation of the beginning and ending amounts of unrecognized income tax benefits (in thousands):



	2017			2016			2015
Balance at beginning of fiscal year	$	2,799		$	2,353		$	2,368
Gross increases for tax positions of prior years	184			534			73
Gross increases for tax positions of the current year	163			—			—
Gross decreases for tax positions of prior years	(31		)	(88		)	(88		)
Balance at end of fiscal year	$	3,115		$	2,799		$	2,353

The amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate is $0.8 million and $0.6 million for the fiscal years ended September 30, 2017 and October 1, 2016, respectively.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. The total accrued penalties and net accrued interest with respect to income taxes was approximately $0.2 million for each of the fiscal years ended September 30, 2017, October 1, 2016 and October 3, 2015. The Company recognized less than $0.1 million of expense for accrued penalties and net accrued interest in the Consolidated Statements of Comprehensive Income for each of the fiscal years ended September 30, 2017, October 1, 2016 and October 3, 2015.

It is possible that a number of uncertain tax positions may be settled within the next 12 months. Settlement of these matters is not expected to have a material effect on the Company’s consolidated results of operations, financial position and cash flows.

The Company files income tax returns, including returns for its subsidiaries, with federal, state, local and foreign taxing jurisdictions. The following tax years remain subject to examination by the respective major tax jurisdictions:



Jurisdiction		Fiscal Years
China		2012-2017
Germany		2013-2017
Mexico		2012-2017
Romania		2011-2017
United Kingdom		2014-2017
United States
Federal		2011, 2013-2017
State		2003-2017