INCOME TAXES

Domestic and foreign income before provision for income tax is as follows:



(In thousands)	2018		2017			2016
Domestic	$	3,534	$	(44,724	)	$	(18,526	)
Foreign	56,098		17,248			(34,890		)
Total	$	59,632	$	(27,476	)	$	(53,416	)

The income tax provision from continuing operations contains the following components:



(In thousands)	2018			2017			2016
Current
Federal	$	9,927		$	(1,424	)	$	12
State	1,024			436			(660		)
Foreign	8,937			6,580			3,842
Total current	$	19,888		$	5,592		$	3,194
Deferred
Federal	(5,350		)	(8,711		)	3,532
State	344			(953		)	319
Foreign	(822		)	2,864			(4,882		)
Total deferred	$	(5,828	)	$	(6,800	)	$	(1,031	)
Total	$	14,060		$	(1,208	)	$	2,163

During the third quarter of fiscal 2018, the Tax Cuts and Jobs Act was enacted in the United States. The Act 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. In December 2017, the Securities and Exchange Commission issued guidance under Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act that directs taxpayers to consider the impact of the U.S. legislation as “provisional” when it does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the change in tax law.

As of March 31, 2018, we have not completed our accounting for the tax effects of the enactment of the Act, however, as described below, we have made a reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax. During fiscal 2018, we recognized a provisional amount of $2.0 million as our reasonable estimate of the impact of the provisions of the Act, which is included as a component of income tax expense in our consolidated statements of income (loss). We will continue to refine our calculations as additional analysis is completed. In addition, our estimates may also be affected as we gain a more thorough understanding of the tax law.

Provisional amounts

As a result of the Act, we re-measured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. However, we are still analyzing certain aspects of the Act and refining our calculations, which could potentially affect the measurement of these balances or potentially give rise to changes in deferred tax amounts. In addition, certain of our deferred tax assets against which we had previously maintained a valuation allowance became more-likely-than-not realizable as a result of the source of income associated with the transition tax and changes in the tax law which resulted in net operating losses generated in future periods having an indefinite carryforward period (as we have existing indefinite lived deferred tax liabilities which can serve as a source of income for indefinite lived deferred tax assets). As we continue to analyze the Act and refine our calculations it could give rise to additional changes in our valuation allowance.

The one-time transition tax associated with the Act is based on our total post-1986 earnings and profits ("E&P") that we previously deferred from U.S. federal taxation. During fiscal 2018, we recorded a provisional amount for our one-time transition tax liability for our foreign subsidiaries of $25.8 million, resulting in an increase in income tax expense. The income tax expense increase was partially offset by the release of the valuation allowance on attributes utilized to offset a portion of the transition tax liability. We have not yet completed our calculation of the total post-1986 E&P for our foreign subsidiaries or the tax pools of our foreign subsidiaries. Further, the transition tax is based in part on the amount of those earnings held in cash and other specified assets. This amount may change when we finalize the calculation of post-1986 foreign E&P previously deferred from U.S. federal taxation and finalize the amounts held in cash or other specified assets. We continue to provide for an additional withholding tax liability on the undistributed foreign earnings of certain foreign subsidiaries. No additional income taxes have been provided for any additional outside basis differences 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 (i.e., basis difference in excess of that subject to the one-time transition tax) is not practicable. We are still in the process of analyzing the impact of the Act on our indefinite reinvestment assertion.

In addition to the reduction in the federal corporate tax rate and the one-time transition tax, which we have accounted for with provisional estimates as of March 31, 2018, we will also continue to analyze and monitor the other impacts of the Act that become effective for the Company in fiscal 2019 including the provisions related to Global Intangible Low Taxed Income, Foreign Derived Intangible Income, Base Erosion Anti-Abuse Tax, as well as other provisions which would limit the deductibility of future expenses.

Our subsidiary in Puerto Rico has been granted a fifteen year tax grant that expires in calendar 2027. Our qualification for the tax grant is dependent on the continuation of our manufacturing activities in Puerto Rico. We benefit from a reduced tax rate on our earnings in Puerto Rico under the tax grant.

Our subsidiary in Malaysia has been granted a full income tax exemption to manufacture whole blood and apheresis devices that could be in effect for up to ten years, provided certain conditions are satisfied. The income tax exemption was in effect beginning June 1, 2016.

Tax affected, significant temporary differences comprising the net deferred tax liability are as follows:



(In thousands)	March 31, 2018			April 1, 2017
Deferred tax assets:
Depreciation	$	1,345		$	934
Amortization of intangibles	964			1,150
Inventory	3,183			7,419
Accruals, reserves and other deferred tax assets	16,939			13,907
Net operating loss carry-forward	10,810			11,742
Stock based compensation	3,292			6,014
Tax credit carry-forward, net	3,479			17,852
Gross deferred tax assets	40,012			59,018
Less valuation allowance	(11,090		)	(25,872		)
Total deferred tax assets (after valuation allowance)	28,922			33,146
Deferred tax liabilities:
Depreciation	(17,732		)	(30,422		)
Amortization of goodwill and intangibles	(11,942		)	(7,732		)
Unremitted earnings	(274		)	(1,065		)
Other deferred tax liabilities	(1,539		)	(2,053		)
Total deferred tax liabilities	(31,487		)	(41,272		)
Net deferred tax liabilities	$	(2,565	)	$	(8,126	)

The valuation allowance decreased by $14.8 million during fiscal 2018, primarily as the result of the release of valuation allowance against U.S. tax attributes that were utilized to offset the transition tax. These tax attribute carryforwards were deemed not realizable prior to the enactment of tax reform. In determining the need for a valuation allowance, we have given consideration to our worldwide cumulative loss position, resulting from significant impairment and restructuring charges incurred in fiscal 2017 and 2016, when assessing the weight of the sources of taxable income that can be used to support the realization of our deferred tax assets. We have assessed, on a jurisdictional basis, the available means of recovering deferred tax assets, including the ability to carry-back net operating losses, the existence of reversing temporary differences, the availability of tax planning strategies and available sources of future taxable income. We have also considered the ability to implement certain strategies that would, if necessary, be implemented to accelerate taxable income and use expiring deferred tax assets. We believe we are able to support the deferred tax assets recognized as of the end of the year based on all of the available evidence. The worldwide net deferred tax liability as of March 31, 2018 includes deferred tax liabilities related to amortizable tax basis in goodwill, which are indefinite lived and can only be used as a source of income to benefit other indefinite lived assets.

As of March 31, 2018, we maintain a valuation allowance against our U.S. net deferred tax assets that are not more-likely-than-not realizable and maintain a full valuation allowance against the net deferred tax assets of certain foreign subsidiaries.

As of March 31, 2018, we have U.S. federal net operating loss carry-forwards of approximately $30.1 million, U.S. state net operating loss carry-forwards of $35.5 million and state tax credit carry-forwards of $4.2 million that are available to reduce future taxable income. The federal and state net operating losses begin to expire in fiscal 2029 and fiscal 2019, respectively. The state tax credits begin to expire in fiscal 2025.

Our net operating loss and tax credit carry-forwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50 percent as defined under Section 382 and 383 of the U.S. Internal Revenue Code of 1986, respectively, as well as similar state provisions. The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. The Company conducted a Section 382 study covering the period April 2, 2011 through December 31, 2017. The study concluded that there were no limitations on the company’s net operating losses and tax credit carryforwards as of December 31, 2017. Subsequent ownership changes may further affect the limitation in future years.

As of March 31, 2018, we have foreign net operating losses of approximately $15.8 million that are available to reduce future income and have an unlimited carry-forward.

As of March 31, 2018, we have provided $0.3 million of net foreign withholding taxes on approximately $12.4 million of unremitted earnings that are not indefinitely reinvested. We have not provided U.S. deferred income taxes or foreign withholding taxes on unremitted earnings of foreign subsidiaries of approximately $343.8 million as such amounts are considered to be indefinitely reinvested in the business. The accumulated earnings in the foreign subsidiaries are primarily utilized to fund working capital requirements as our subsidiaries continue to expand their operations, to service existing debt obligations and to fund future foreign acquisitions. We do not believe it is practicable to estimate the amount of income taxes payable on the earnings that are indefinitely reinvested in foreign operations. The Company is still in the process of completing its analysis of the impact of the Act on its indefinite reinvestment assertion.

The income tax provision from continuing operations differs from tax provision computed at the U.S. federal statutory income tax rate due to the following:



(In thousands)	2018					2017					2016
Tax at federal statutory rate	$	18,807		31.5	%	$	(9,616	)	35.0	%	$	(18,695	)	35.0	%
Difference between U.S. and foreign tax	(9,264		)	(15.5	)%	137			(0.5	)%	10,645			(19.9	)%
State income taxes net of federal benefit	29			—	%	(495		)	1.8	%	134			(0.3	)%
Change in uncertain tax positions	1,095			1.8	%	862			(3.1	)%	(1,820		)	3.4	%
Unremitted earnings	(791		)	(1.3	)%	330			(1.2	)%	735			(1.4	)%
Deferred statutory rate changes	(3,193		)	(5.4	)%	(383		)	1.4	%	(2,653		)	5.0	%
Non-deductible goodwill impairment	—			—	%	3,703			(13.5	)%	2,861			(5.4	)%
Non-deductible expenses	243			0.4	%	896			(3.2	)%	1,491			(2.8	)%
Stock compensation benefits	(2,544		)	(4.3	)%	—			—	%	—			—	%
Research credits	(763		)	(1.3	)%	(561		)	2.0	%	(672		)	1.3	%
One-time transition tax from tax reform	25,798			43.3	%	—			—	%	—			—	%
Tax amortization of goodwill	—			—	%	(10,564		)	38.4	%	4,185			(7.8	)%
Valuation allowance	(15,541		)	(25.9	)%	13,505			(49.2	)%	5,194			(9.7	)%
Other, net	184			0.3	%	978			(3.5	)%	758			(1.4	)%
Income tax (benefit) provision	$	14,060		23.6	%	$	(1,208	)	4.4	%	$	2,163		(4.0	)%

We recorded an income tax provision of $14.1 million, representing an effective tax rate of 23.6%. The effective tax rate differs from the U.S. statutory rate of 31.5% primarily as a result of the impacts of U.S. tax reform (including the impact of the tax reduction, an increase to tax expense for the transition tax liability and the tax benefit recorded associated with the release of valuation allowance against certain tax attributes which were previously not deemed realizable) and the jurisdictional mix of earnings. We have recorded a $0.8 million tax benefit associated with the portion of unremitted foreign earnings that are not considered indefinitely reinvested.

Unrecognized Tax Benefits

Unrecognized tax benefits represent uncertain tax positions for which reserves have been established. As of March 31, 2018, we had $4.5 million of unrecognized tax benefits, of which $3.8 million would impact the effective tax rate, if recognized. As of April 1, 2017, we had $3.4 million of unrecognized tax benefits, of which $1.5 million would impact the effective tax rate, if recognized. At April 2, 2016, we had $2.5 million of unrecognized tax benefits, of which $0.6 million would impact the effective tax rate, if recognized.

During the fiscal year ended March 31, 2018 our unrecognized tax benefits were increased by $1.1 million, primarily relating to uncertain tax positions established against various federal and state tax credits.

The following table summarizes the activity related to our gross unrecognized tax benefits for the fiscal years ended March 31, 2018, April 1, 2017 and April 2, 2016:



(In thousands)	March 31, 2018			April 1, 2017			April 2, 2016
Beginning Balance	$	3,370		$	2,523		$	7,070
Additions for tax positions of current year	289			—			—
Additions for tax positions of prior years	1,203			1,279			340
Reductions of tax positions	(252		)	(29		)	(4,158		)
Settlements with taxing authorities	—			—			—
Closure of statute of limitations	(160		)	(403		)	(729		)
Ending Balance	$	4,450		$	3,370		$	2,523

As of March 31, 2018 we anticipate that the liability for unrecognized tax benefits for uncertain tax positions could change by up to $1.4 million in the next twelve months, as a result of closure of various statutes of limitations and potential settlements with tax authorities.

Our historical practice has been and continues to be to recognize interest and penalties related to federal, state and foreign income tax matters in income tax expense. Approximately $0.2 million of gross interest and penalties were accrued at both March 31, 2018 and April 1, 2017 and is not included in the amounts above. There was no benefit included in tax expense associated with accrued interest and penalties during the fiscal year ended March 31, 2018. There was a benefit included in tax expense associated with accrued interest and penalties of $0.2 million and $0.3 million for the periods ended April 1, 2017 and April 2, 2016, respectively.

We conduct business globally and, as a result, file consolidated and separate federal, state and foreign income tax returns in multiple jurisdictions. In the normal course of business, we are subject to examination by taxing authorities throughout the world. With a few exceptions, we are no longer subject to U.S. federal, state, or local income tax examinations for years before fiscal 2015 and foreign income tax examinations for years before fiscal 2013. To the extent that we have tax attribute carry-forwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service, state, or foreign tax authorities to the extent utilized in a future period.