6INCOME TAXES

The U.S. and foreign income before income taxes for the respective years consisted of the following:



	2016		2015		2014
United States	$	28,881	$	11,886	$	11,592
Foreign		(5,226)		3,867		5,830
	$	23,655	$	15,753	$	17,422

Income tax expense for the respective years consisted of the following:



	2016		2015		2014
Current:
Federal	$	9,471	$	4,916	$	3,888
State		1,492		882		403
Foreign		986		1,469		1,886
Deferred		(1,795)		(2,130)		2,122
	$	10,154	$	5,137	$	8,299

The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities at the end of the respective years are presented below:



	2016		2015
Deferred tax assets:
Inventories	$	2,041	$	2,495
Compensation		13,956		12,312
Tax credit carryforwards		4,691		4,888
Net operating loss carryforwards		7,628		6,360
Other		7,558		5,532
Total gross deferred tax assets		35,874		31,587
Less valuation allowance		10,215		9,786
Deferred tax assets		25,659		21,801
Deferred tax liabilities:
Goodwill and other intangibles		1,571		1,185
Depreciation and amortization		5,744		5,411
Foreign statutory reserves		497		520
Net deferred tax assets	$	17,847	$	14,685

The net deferred tax assets recorded in the accompanying Consolidated Balance Sheet as of the years ended September 30, 2016 and October 2, 2015 were as follows:



	2016		2015
Non-current assets	$	19,063	$	15,867
Non-current liabilities		1,216		1,182
Net deferred tax assets	$	17,847	$	14,685

The significant differences between the statutory federal tax rate and the effective income tax rates for the Company for the respective years shown below were as follows:



	2016		2015		2014
Statutory U.S. federal income tax rate	35.0	%	35.0	%	35.0	%
Foreign rate differential	0.3		(1.5)		(0.5)
State income tax, net of federal benefit	6.1		2.4		4.4
Tax credit	(3.5)		(18.8)		(6.3)
Deferred tax asset valuation allowance	0.8		10.0		(0.3)
Uncertain tax positions, net of settlements	1.4		1.7		5.4
Goodwill impairment	6.6		0.0		10.4
Section 199 manufacturer's deduction	(4.2)		(3.7)		(1.6)
Amended tax returns	0.0		3.5		0.0
Other	0.4		4.0		1.2
	42.9	%	32.6	%	47.7	%

The Company’s net operating loss carryforwards and their expirations as of September 30, 2016 were as follows:



	State		Foreign		Total
Year of expiration
2017-2021	$	6	$	3,084	$	3,090
2022-2026		2,953		5,434		8,387
2027-2031		31,144		-		31,144
2032-2036		585		-		585
Indefinite		-		9,941		9,941
Total	$	34,688	$	18,459	$	53,147

The Company has tax credit carryforwards comprised of state credits as shown in the table below.



	State		Federal		Total
Year of expiration
2017-2021	$	1,499	$	-	$	1,499
2022-2026		1,929		-		1,929
2027-2031		904		-		904
2032-2036		359		-		359
Indefinite		-				-
Total	$	4,691	$	-	$	4,691

The negative impact of the valuation allowance in 2016 was primarily the result of not realizing a significant portion of net deferred tax assets in certain foreign jurisdiction. In the fourth quarter of 2016, the Company reached the conclusion that it was appropriate to setup a valuation allowance against the deferred tax assets in Austria and Indonesia due to negative operating performance in both of these jurisdictions.

The negative impact of the valuation allowance in 2015 was primarily the result of not realizing a significant portion of the U.S. state deferred tax assets. In the fourth quarter of 2015, the Company reached the conclusion that it was appropriate to (1) release the valuation allowance against the Italian deferred tax assets due to the sustained positive operating performance of its Italy operations and (2) setup a valuation allowance against the deferred tax assets in Australia and Switzerland due to continued negative operating performance in both of these jurisdictions.

The positive impact of the valuation allowance in fiscal 2014 of a tax benefit was primarily the result of earnings in Italy, Netherlands, Spain and United Kingdom offsetting operating losses in France, Japan and New Zealand. The Company believed at that time that the negative evidence continued to outweigh the positive evidence and, as such, the valuation allowance during fiscal 2014 remained in place.

In accordance with its accounting policy, the Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. Interest and penalties of $194, $148 and $186 were recorded as a component of income tax expense in the accompanying Consolidated Statements of Operations during fiscal years 2016, 2015 and 2014, respectively.

A reconciliation of the beginning and ending amount of unrecognized tax benefits follows:



Balance at October 3, 2014	$	3,535
Settlement		(103)
Lapse of statute of limitations		(329)
Gross increases - tax positions in period		778
Balance at October 2, 2015	$	3,881
Settlement		-
Lapse of statute of limitations		(391)
Gross increases - tax positions in period		1,606
Balance at September 30, 2016	$	5,096

The total accrued interest and penalties with respect to income taxes was approximately $1,079 and $787 for the years ended September 30, 2016 and October 2, 2015, respectively. The Company’s liability for unrecognized tax benefits as of September 30, 2016 was $5,100, and if recognized, $4,600 would have an effective tax rate impact.

The Company has not provided additional U.S. income taxes on $108,552 of undistributed earnings of consolidated foreign subsidiaries included in shareholders’ equity attributable to the Company. Such earnings could become taxable upon the sale or liquidation of these foreign subsidiaries or upon dividend repatriation. The Company is planning to repatriate foreign earnings in fiscal 2017 and the related U.S. tax liability is anticipated to be offset by foreign tax credits for the foreign income taxes previously paid on these earnings. The Company does not intend or foresee a need to repatriate the remaining undistributed foreign earnings and considers these earnings indefinitely reinvested in the foreign subsidiaries. If at some future date these earnings cease to be indefinitely reinvested and are repatriated, the Company may be subject to additional U.S. income taxes and foreign withholding and other taxes on such amounts. It is not practicable to estimate the amount of unrecognized withholding taxes and deferred tax liability on such earnings.

As of September 30, 2016, the Company held approximately $53,698 of cash and cash equivalents in foreign jurisdictions.

The Company is currently undergoing examinations in Italy, France and Germany. The amount of unrecognized tax benefits recognized within the next twelve months may decrease due to expiration of the statute of limitations for certain years in various jurisdictions. However, it is possible that a jurisdiction may open an audit prior to the statute expiring or one of the aforementioned audits may result in adjustments to the Company’s tax filings. At this time, an estimate of the range of the reasonably possible change cannot be made.

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
United States	2013-2016
Canada	2012-2016
France	2012-2016
Germany	2009-2016
Italy	2011-2016
Japan	2013-2016
Switzerland	2006-2016