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INCOME TAXES | 12 Months Ended
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Sep. 28, 2018
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES The U.S. and foreign income before income taxes for the respective years consisted of the following:
| 2018 |  | 2017 |  | 2016
United States | $ | 57,888 |  |  | $ | 41,463 |  |  | $ | 28,881 |
Foreign | 10,218 |  |  | 6,747 |  |  | (5,226 | )
| $ | 68,106 |  |  | $ | 48,210 |  |  | $ | 23,655 |
Income tax expense for the respective years consisted of the following:
| 2018 |  | 2017 |  | 2016
Current: |  |  |  |  |
Federal | $ | 12,390 |  |  | $ | 13,154 |  |  | $ | 9,471 |
State | 4,482 |  |  | 2,361 |  |  | 1,492 |
Foreign | 1,678 |  |  | 1,455 |  |  | 986 |
Deferred | 8,887 |  |  | (3,917 | ) |  | (1,795 | )
| $ | 27,437 |  |  | $ | 13,053 |  |  | $ | 10,154 |
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:
| 2018 |  | 2017
Deferred tax assets: |  |  |
Inventories | $ | 1,477 |  |  | $ | 2,263 |
Compensation | 6,930 |  |  | 14,260 |
Tax credit carryforwards | 3,890 |  |  | 8,203 |
Net operating loss carryforwards | 4,399 |  |  | 5,844 |
Other | 6,458 |  |  | 8,041 |
Total gross deferred tax assets | 23,154 |  |  | 38,611 |
Less valuation allowance | 6,402 |  |  | 8,613 |
Deferred tax assets | 16,752 |  |  | 29,998 |
Deferred tax liabilities: |  |  |  |  |
Goodwill and other intangibles | 1,236 |  |  | 1,805 |
Depreciation and amortization | 4,759 |  |  | 6,802 |
Foreign statutory reserves | 724 |  |  | 604 |
Net deferred tax assets | $ | 10,033 |  |  | $ | 20,787 |
The net deferred tax assets recorded in the accompanying Consolidated Balance Sheets as of the years ended September 28, 2018 and September 29, 2017 were as follows:
| 2018 |  | 2017
Non-current assets | $ | 11,748 |  |  | $ | 22,632 |
Non-current liabilities | 1,715 |  |  | 1,845 |
Net deferred tax assets | $ | 10,033 |  |  | $ | 20,787 |
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:
| 2018 |  | 2017 |  | 2016
Statutory U.S. federal income tax rate | 24.5 | % | ** | 35.0 | % |  | 35.0 | %
Foreign rate differential | — | % |  | (1.1 | )% |  | 0.3 | %
State income tax, net of federal benefit | 4.1 | % |  | 4.0 | % |  | 6.1 | %
Tax credit | (0.7 | )% |  | (0.9 | )% |  | (3.2 | )%
Deferred tax asset valuation allowance | 0.6 | % |  | (0.3 | )% |  | 0.8 | %
Uncertain tax positions, net of settlements | 2.2 | % |  | 0.9 | % |  | 1.4 | %
Goodwill impairment | — | % |  | — | % |  | 6.6 | %
Section 199 manufacturer's deduction | (2.2 | )% |  | (2.8 | )% |  | (4.2 | )%
Taxes related to foreign income, net of credits | 0.1 | % |  | (8.7 | )% | * | 0.5 | %
Compensation | 1.5 | % |  | — | % |  | — | %
Tax rate or law change | 12.3 | % |  | — | % |  | — | %
Other | (2.1 | )% |  | 1.0 | % |  | (0.4 | )%
| 40.3 | % |  | 27.1 | % |  | 42.9 | %
* Rate benefit is primarily from excess foreign tax credits generated by a dividend repatriation in the first quarter of fiscal 2017. ** The federal statutory rate is a blended rate which reflects 35.0% through December 31, 2017 and the lower rate of 21.0% beginning on January 1, 2018 due to tax reform. On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was enacted into law. The Act includes significant changes to the U.S. corporate income tax system which reduces the U.S. federal corporate income tax rate from 35.0% to 21.0% as of January 1, 2018; shifts to a modified territorial tax regime which requires companies to pay a transition tax on earnings of certain foreign subsidiaries that were previously deferred from U.S. income tax; and creates new taxes on certain foreign-sourced earnings. The decrease in the U.S. federal corporate income tax rate from 35.0% to 21.0% results in a blended statutory tax rate of 24.5% for the fiscal year ending September 28, 2018. The new taxes for certain foreign-sourced earnings under the Act are effective for the Company in fiscal 2019. Income tax effects resulting from changes in tax laws are accounted for by the Company in the period in which the law is enacted and the effects are recorded as a component of income tax expense or benefit. As a result, the Company recorded provisional income tax expense resulting from application of the Act totaling $8,386 during the year ended September 28, 2018, which includes (i) a transition tax of $3,414 on the Company’s total post-1986 earnings and profits (“E&P”) which, prior to the Act, were previously deferred from U.S. income tax, and (ii) a $4,972 increase in income tax expense as a result of the re-measurement of the Company’s deferred tax assets and liabilities to the new corporate tax rate of 21.0%. Consistent with provisions allowed under the Tax Act, the Transition Tax liability will be paid over an eight year period beginning in fiscal year 2019. As of September 28, 2018, the noncurrent portion of the estimated Transition Tax liability in the amount of $2,049 has been included in “Other liabilities” in the Consolidated Balance Sheets. The Securities and Exchange Commission staff issued Staff Accounting Bulletin (“SAB”) 118 to provide guidance on accounting for various effects of the Act that may be at different stages of completion. To the extent that a company’s accounting for a certain income tax effect of the Act is incomplete, but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. The final impact may differ from these provisional amounts, possibly materially, due to, among other things, issuance of additional regulatory guidance, changes in interpretations and assumptions the Company has made, and actions the Company may take as a result of the Act. In accordance with SAB 118, the financial reporting impact of the Act will be completed no later than the first quarter of fiscal 2019. As of September 28, 2018, the tax effects related to the Act are provisional and represent the Company’s best estimate. Amounts recorded are based in part on a reasonable estimate of the effects on its transition tax and existing deferred tax balances which are subject to change and modification. Provisional amounts recorded may change as a result of the following:
• | The amount recorded for the transition tax liability is a provisional amount and based on current estimates of total post-1986 foreign E&P and the income tax pools for all foreign subsidiaries which will continue to be refined over the coming periods. 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 the Company finalizes the calculation of post-1986 foreign E&P previously deferred from U.S. federal taxation and finalizes the amounts held in cash or other specified assets as of September 28, 2018. Further interpretations from U.S. federal and state governments and regulatory organizations may change the provisional tax liability or the accounting treatment of the provisional tax liability.
• | The Company is still analyzing certain aspects of the Act and refining the estimate of the expected revaluation of its deferred tax balances. This can potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. The Act also provides changes related to the limits of deduction for employee compensation. The Company is treating any future non-deductible compensation as impacting compensation expenses in the period incurred and will review further guidance and the related impact as provided through the first quarter of fiscal 2019.
• | The Act also includes a provision designed to tax global intangible low taxed income (GILTI) and benefit foreign-derived intangible income (FDII) which will be effective in fiscal 2019. Under the provision, a U.S. shareholder is required to include in gross income the amount of its GILTI, which is generally the net income of its controlled foreign corporations in excess of a 10% return on depreciable tangible assets after identification of other income subject to non-deferral rules. Due to the complexity of the new GILTI tax rules and uncertainty of the application of the foreign tax credit rules in relation to GILTI and FDII, we are continuing to evaluate this provision of the Act and the application of ASC 740, and are considering available accounting policy alternatives to either record the U.S. income tax effect of future GILTI inclusions in the period in which they arise or establish deferred taxes with respect to the expected future tax liabilities associated with future GILTI inclusions. Our accounting policies depend, in part, on analyzing our global income to determine whether we expect a tax liability resulting from the application of this provision, and, if so, whether and when to record related current and deferred income taxes. In addition, we are awaiting further interpretive guidance in connection with the computation of the GILTI tax. For these reasons, we are not yet able to reasonably estimate the effect of this provision of the Act. Therefore, we have not made any adjustments relating to potential GILTI tax in our consolidated financial statements and have not made a policy decision regarding our accounting for GILTI.
• | Prior to the Act, our practice and intention was to reinvest the earnings in our non-U.S. subsidiaries outside of the U.S., and no U.S. deferred income taxes or foreign withholding taxes were recorded. The transition tax noted above resulted in the previously untaxed foreign earnings being included in the federal and state fiscal 2018 taxable income. We are currently analyzing our global working capital requirements and the potential tax liabilities that would be incurred if the non-U.S. subsidiaries distribute cash to the U.S. parent, which may include withholding taxes, local country taxes and potential U.S. state taxation. For these reasons, we are not yet able to reasonably estimate the effect of this provision of the Act and have not recorded any withholding or state tax liabilities, any deferred taxes attributable to GILTI (as noted above) or any deferred taxes attributable to our investment in our foreign subsidiaries.
• | We are also currently analyzing certain additional provisions of the Act that come into effect in fiscal 2019 and will determine if and how these items would impact the effective tax rate in the year the income or expense occurs. These provisions include the Base Erosion Anti-Abuse Tax (BEAT), eliminating U.S. federal income taxes on dividends from foreign subsidiaries, the new provision that could limit the amount of deductible interest expense, and the limitations on the deductibility of certain executive compensation.
The Company’s net operating loss carryforwards and their expirations as of September 28, 2018 were as follows:
| State |  | Foreign |  | Total
Year of expiration |  |  |  |  |
2019-2023 | $ | 840 |  |  | $ | 3,626 |  |  | $ | 4,466 |
2024-2028 | 2,427 |  |  | 1,209 |  |  | 3,636 |
2029-2033 | 14,060 |  |  | — |  |  | 14,060 |
2034-2038 | 67 |  |  | — |  |  | 67 |
Indefinite | — |  |  | 6,326 |  |  | 6,326 |
Total | $ | 17,394 |  |  | $ | 11,161 |  |  | $ | 28,555 |
The Company has tax credit carryforwards as follows:
| State |  | Federal |  | Total
Year of expiration |  |  |  |  |
2019-2023 | $ | 1,782 |  |  | $ | — |  |  | $ | 1,782 |
2024-2028 | 1,365 |  |  | — |  |  | 1,365 |
2029-2033 | 598 |  |  | — |  |  | 598 |
2034-2038 | 120 |  |  | — |  |  | 120 |
Indefinite | — |  |  | — |  |  | — |
Total | $ | 3,865 |  |  | $ | — |  |  | $ | 3,865 |
A reconciliation of the beginning and ending amount of unrecognized tax benefits follows:
| 2018 |  | 2017
Beginning balance | $ | 5,489 |  |  | $ | 5,096 |
Gross increases - tax positions in prior period | 2,962 |  |  | 300 |
Gross decreases - tax positions in prior period | (105 | ) |  | — |
Gross increases - tax positions in current period | 1,064 |  |  | 554 |
Settlements | — |  |  | (81 | )
Lapse of statute of limitations | (581 | ) |  | (380 | )
Ending balance | $ | 8,829 |  |  | $ | 5,489 |
The total accrued interest and penalties with respect to income taxes was approximately $1,863 and $1,326 for the years ended September 28, 2018 and September 29, 2017, respectively. The Company’s liability for unrecognized tax benefits as of September 28, 2018 was $8,829, and if recognized, $6,596 would have an effective tax rate impact. 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 $537, $246 and $194 were recorded as a component of income tax expense in the accompanying Consolidated Statements of Operations during fiscal years 2018, 2017 and 2016, respectively. The Company files income tax returns, including returns for its subsidiaries, with federal, state, local and foreign taxing jurisdictions. At September 28, 2018, the Company was under income tax examination in Italy 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 the aforementioned audit 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 following tax years remain subject to examination by the Company's respective major tax jurisdictions:
Jurisdiction | Fiscal Years
United States | 2015-2018
Canada | 2014-2018
France | 2015-2018
Germany | 2013-2018
Italy | 2013-2018
Switzerland | 2008-2018

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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