INCOME TAXES

The following table reflects income from continuing operations by location, the provision for income taxes and the effective tax rate for fiscal 2015, 2014, and 2013:



	Fiscal
(dollar amounts in thousands)	2015			2014			2013
United States operations	$	4,178		$	7,700		$	(4,340	)
Foreign operations	33,527			69,433			71,008
Income from operations before tax	37,705			77,133			66,668
Income tax (benefit)/expense	(12,934		)	14,145			7,310
Net income	$	50,639		$	62,988		$	59,358

Effective tax rate	(34.3		)%	18.3		%	11.0		%

The following table reflects the provision for income taxes from continuing operations for fiscal 2015, 2014, and 2013:



	Fiscal
(in thousands)	2015			2014		2013
Current:
Federal	$	1,459		$	843	$	(212	)
State	76			78		291
Foreign	4,707			5,534		1,732
Deferred:
Federal	(20,250		)	5,474		985
State	(10		)	5		5
Foreign	1,084			2,211		4,509
Provision for income taxes	$	(12,934	)	$	14,145	$	7,310

The following table reflects the difference between the provision for income taxes and the amount computed by applying the statutory federal income tax rate for fiscal 2015, 2014, and 2013:



	Fiscal
(in thousands)	2015			2014			2013
Computed income tax expense based on U.S. statutory rate	$	13,197		$	26,997		$	23,334
Effect of earnings of foreign subsidiaries subject to different tax rates	(6,103		)	(9,763		)	(11,193		)
Benefits from foreign approved enterprise zones	(5,855		)	(17,423		)	(9,626		)
Benefits from research and development tax credits (including prior years)	(4,090		)	—			—
Change in Permanent Reinvestment Assertion	(19,704		)	—			—
Dividend income	—			8,190			—
Effect of permanent items	1,822			(298		)	664
Changes in valuation allowance	2,634			(1,820		)	1,429
Foreign operations (withholding taxes, deferred taxes on unremitted earnings, US taxation of foreign earnings)	4,904			5,906			1,789
Reserve for uncertain tax positions	886			131			683
State income tax expense	(1,543		)	2,241			(734		)
Other, net	918			(16		)	964
Provision for income taxes	$	(12,934	)	$	14,145		$	7,310

Income tax expense for the current year includes approximately $1.0 million, $1.2 million and $0.3 million of taxes payable for deemed distributions from earnings for the years ended October 3, 2015, September 27, 2014 and September 28, 2013, respectively.

During the year ended October 3, 2015, the Company began executing a business structure reorganization for two groups of its foreign subsidiaries resulting in a change in its permanent reinvestment assertion outside the United States. Approximately $19.7 million of deferred tax liability was reversed and recorded as a tax benefit due to the change in the assertion.

We consider the earnings of certain foreign subsidiaries to be permanently reinvested outside the United States. We have not recorded a deferred tax liability for U.S. federal income taxes of approximately $530.5 million of undistributed earnings. Determination of the amount of unrecognized deferred tax liability related to these earnings is not practicable, with the exception of a foreign subsidiary where we continue to retain a deferred tax liability for foreign withholding taxes of approximately $14.5 million, as those earnings may be distributed to its immediate foreign parent company.

Undistributed earnings of approximately $27.2 million are not considered to be permanently reinvested outside the United States. As of October 3, 2015, the Company has provided a deferred tax liability of approximately $12.6 million for withholding taxes associated with future repatriation of earnings for certain subsidiaries to the United States.

The following table reflects the net deferred tax balance, composed of the tax effects of cumulative temporary differences for fiscal 2015 and 2014:



	Fiscal
(in thousands)	2015			2014
Inventory reserves	$	641		$	692
Other accruals and reserves	3,470			3,713
Net operating loss carryforwards	628			666
Valuation allowance	(613		)	(780		)
Total short-term deferred tax asset	$	4,126		$	4,291

Total short-term deferred tax liability	23			106
Net short-term deferred tax asset	$	4,103		$	4,185

Domestic tax credit carryforwards	$	5,035		$	688
Net operating loss carryforwards	32,355			27,361
Stock options	525			703
Other	337			400
	38,252			29,152
Valuation allowance	(22,502		)	(23,844		)
Total long-term deferred tax asset (1)	$	15,750		$	5,308

Repatriation of foreign earnings, including foreign withholding taxes	$	27,101		$	43,204
Depreciable assets	16,735			3,013
Prepaid expenses and other	—			300
Total long-term deferred tax liability	$	43,836		$	46,517
Net long-term deferred tax liability	$	28,086		$	41,209
Total net deferred tax liability	$	23,983		$	37,024


(1)	Included in other assets on the Consolidated Balance Sheets are deferred tax assets of $3.2 million and $3.8 million as of October 3, 2015 and September 27, 2014, respectively.

As of October 3, 2015, the Company has foreign net operating loss carryforwards of $102.5 million, domestic state net operating loss carryforwards of $186.0 million, domestic federal net operating loss carryforwards of $3.2 million, and tax credit carryforwards of $7.4 million that will reduce future taxable income. These carryforwards can be utilized in the future, prior to expiration of certain carryforwards in fiscal years 2016 through 2034 with the exception of certain credits and foreign net operating losses that have no expiration date. Pennsylvania tax law limits the time during which carryforwards may be applied against future taxes and also limits the utilization of domestic state net operating loss carryforwards to as little as $4.0 million annually, but recent tax law changes may increase this amount in future years. The Company has recorded a valuation allowance against domestic state tax attributes and certain foreign tax attributes, including additional valuation allowance relating to the tax attributes of acquired Assembléon entities.

The Company continues to evaluate the realizability of all of its net deferred tax assets at each reporting date and records a benefit for deferred tax assets to the extent it has deferred tax liabilities that provide a source of income to benefit the deferred tax asset. As a result of this analysis, the Company continues to maintain a valuation allowance against a majority of its state deferred tax assets as the realization of these assets is not more likely than not given uncertainty of future earnings in these jurisdictions.

The beginning and ending balances of the Company's unrecognized tax benefits are reconciled below for fiscal 2015, 2014, and 2013:



	Fiscal
(in thousands)	2015			2014			2013
Unrecognized tax benefit, beginning of year	$	7,192		$	6,869		$	6,186
Additions for tax positions, current year	—			—			—
Additions for tax positions, prior year	5,140			717			2,485
Reductions for tax positions, prior year	(5,231		)	(394		)	(1,802		)
Unrecognized tax benefit, end of year	$	7,101		$	7,192		$	6,869

If recognized, the $6.0 million of unrecognized tax benefit as of October 3, 2015 would impact the Company's effective tax rate.

In fiscal 2015, the Company recorded reserves relating to uncertain tax positions with respect to the acquired business of Assembléon, and has also released tax reserves for research tax credits resulting from a write off of research tax credits carryforwards that had no impact to the statement of operations.

In fiscal 2013, the Company recognized a benefit of $1.7 million related to the reversal of a reserve for uncertain tax positions based on administrative practices in a foreign jurisdiction and an additional $0.1 million related to a position effectively settled upon audit in a different foreign jurisdiction. The Company has also taken a position on a tax return in a foreign jurisdiction that does meet the recognition and measurement criteria under ASC 740 and as a result it has provided a reserve for uncertain tax position of $2.1 million.

The Company recognizes interest and penalties accrued related to unrecognized tax benefits as a component of income tax expense. There were no additional accruals of interest expense on various uncertain tax positions during fiscal 2015 for matters involving jurisdictions where interest is not assessed.

The Company's future effective tax rate would be affected if earnings were lower than anticipated in countries where it is subjected to lower statutory rates and higher than anticipated in countries where it is subjected to higher statutory rates, by changes in the valuation of its deferred tax assets and liabilities, or by changes in tax laws, regulations, accounting principles, or interpretations thereof. In addition, changes in assertion for foreign earnings permanently or non-permanently reinvested as a result of changes in facts and circumstances could significantly impact the effective tax rate. The Company regularly assesses the effects resulting from these factors to determine the adequacy of its provision for income taxes.

It is reasonably possible that the amount of the unrecognized tax benefit with respect to certain unrecognized tax positions will increase or decrease during the next 12 months due to the expected lapse of statutes of limitation and/ or settlements of tax examinations. We cannot practicably estimate the financial outcomes of these examinations.

The Company files U.S. federal income tax return, as well as income tax returns in various state and foreign jurisdictions. For the U.S. federal income tax returns and most state tax returns, tax years following fiscal 2001 remain subject to examination as a result of the generation of net operating loss carry-forwards. Currently, the Company is not under any income tax examinations by any U.S. tax authority. In the foreign jurisdictions where the Company files income tax returns, the statutes of limitations with respect to these jurisdictions vary from jurisdiction to jurisdiction and range from 4 to 6 years. The Company is currently under income tax examination by tax authorities in certain foreign jurisdictions.

As a result of committing to certain capital investments and employment levels, income from operations in Singapore and Malaysia is subject to reduced tax rates. In connection with Singapore operations, the Company has been granted a decreased effective tax rate of five percent in that jurisdiction until February 1, 2020 subject to the fulfillment of certain continuing conditions. In fiscal 2015, 2014, and 2013, the preferential rate reduced income tax expense by approximately $5.9 million or $0.08 per share, $17.4 million or $0.23 per share and $9.6 million or $0.13 per share, respectively.