(dollars in thousands)	2019			2018			2017
current
federal	$	(1,492	)		(1,367	)		109
state		27			9			13
2017 Tax Cuts and Jobs Act		(282	)		4,854			—
foreign		6,144			4,726			5,981
foreign – reversal of uncertain tax position		—			—			(3,431	)
		4,397			8,222			2,672
deferred
federal		3,123			4,295			404
state		(96	)		112			54
2017 Tax Cuts and Jobs Act (1)		(268	)		(6,903	)		—
undistributed earnings – foreign subsidiaries		3,735			(195	)		(101	)
U.S. operating loss carryforwards		74			—			3,630
foreign		(85	)		93			734
valuation allowance (1)		(4,456	)		116			(54	)
		2,027			(2,482	)		4,667
	$	6,424			5,740			7,339

(1)

The income tax benefit of $

6,903

recorded during fiscal 2018 included a charge of $

4,550

for the establishment of a valuation allowance against U.S. foreign tax credits that were

not more-likely-than not to be realized as a result of the 2017 Tax Cuts and Jobs Act. During fiscal 2019, we recorded an income tax charge of $

4.5

million for the write-off of certain U.S. foreign tax credits, and in turn, we recorded an income tax benefit of $4.5 million for the reduction in our valuation allowance. The $4.5 million income charge for the write-off of certain U.S. foreign tax credits is included in the undistributed earnings - foreign subsidiaries income tax expense amount of $3.8 million.

(dollars in thousands)	2019			2018		2017
Foreign
China	$	9,899			11,036		13,650
Canada		5,488			5,985		4,918
Poland		—			—		(19	)
Cayman Islands		280			339		154
Total Foreign		15,667			17,360		18,703
United States		(3,671	)		9,523		10,993
	$	11,996			26,883		29,696

	2019			2018			2017
federal income tax rate		21.0	%		30.4	%		34.0	%
undistributed earnings from foreign subsidiaries		37.2			—			—
valuation allowance		(37.1	)		0.4			(0.2	)
global intangible low taxed income tax (GILTI)		17.9			—			—
foreign tax rate differential		13.7			3.7			—
tax effects of the 2017 Tax Cuts and Jobs Act		(4.6	)		(7.6	)		—
tax effects of Chinese foreign exchange gains(losses)		2.3			(2.8	)		1.6
reversal of foreign uncertain income tax position		—			—			(11.6	)
tax effects of stock-based compensation		0.6			(1.8	)		—
other		2.6			(0.9	)		0.9
		53.6	%		21.4	%		24.7	%

(dollars in thousands)	2019			2018
deferred tax assets:
accounts receivable	$	282			316
inventories		1,591			2,217
compensation		1,973			3,438
liabilities and other		284			117
foreign income tax credits - U.S.		1,252			5,720
property, plant and equipment (1)		193			226
loss carryforwards – U.S.		2,360			2,513
loss carryforwards – foreign		—			76
valuation allowances		(748	)		(5,204	)
total deferred tax assets		7,187			9,419
deferred tax liabilities:
undistributed earnings on foreign subsidiaries		(3,523	)		(4,256	)
unrecognized tax benefits – U.S.		(380	)		(380	)
property, plant and equipment (2)		(4,710	)		(4,352	)
goodwill		(1,203	)		(1,046	)
other		(90	)		(77	)
total deferred tax liabilities		(9,906	)		(10,111	)
Net deferred liabilities	$	(2,719	)		(692	)

At April 28, 2019, our U.S. federal net operating loss carryforwards totaled $6.9 million with related future income tax benefits of $1.6 million. U.S. federal net operating loss carryforwards that were generated prior to fiscal 2018 totaled $5.4 million and have expiration dates ranging from fiscal years 2028 through 2038. In accordance with the

2017 Tax Cuts and Jobs Act, our U.S. federal

net operating loss carryforward generated in fiscal 2019 totaling $1.6 million does not expire. At April 28, 2019, our U.S. state net operating loss carryforwards totaled $22.2 million with related future income tax benefits of $

797

,000. Our U.S. state net operating loss carryforwards totaling $22.2 million have expiration dates ranging from fiscal years 2021 through 2039. Our U.S. foreign income tax credits of $1.3 million will expire 10 years from when the associated earnings and profits from our foreign subsidiaries are repatriated to the U.S.

On December 22, 2017 (the “Enactment Date”), the Tax Cuts and Jobs Act (H.R.1) (the “Tax Act”) was signed into law. The Tax Act contains significant changes to corporate taxation, including (i) the reduction of the corporate income tax rate to 21%, (ii) the acceleration of expensing certain business assets, (iii) a one-time mandatory repatriation tax (the “Transition Tax”) related to the transition of U.S. international tax from a worldwide tax system to a territorial

tax system, (iv) limitations

on the use of foreign tax credits to reduce the U.S. income tax liability, (v) the repeal of the domestic production activities deduction, (vi) additional limitations on the deductibility of interest expense and executive compensation, and (vii) the creation of the Global Intangible Low Taxed Income (“GILTI”) tax.

The corporate income tax rate reduction was effective as of January 1, 2018. Since we have a fiscal year rather than a calendar year, we were subject to IRS rules relating to transitional income tax rates for fiscal 2018. As a result, our fiscal 2018 U.S. federal income tax rate was a blended income tax rate of 30.4% compared with a fully reduced U.S. federal income tax rate of 21.0% during fiscal 2019.

The re-measurement of our U.S. deferred income tax balances to the new U.S. federal corporate income tax rate and the determination of the income tax effects of the Transition Tax on our accumulated earnings and profits associated with our foreign subsidiaries were components of the Tax Act that significantly affected our financial statements during fiscal 2019 and 2018. As of April 29, 2018, we had not yet completed our assessment of the effects of the Tax Act, however, we were able to determine reasonable estimates for the effects of the components specified above, and thus we reported provisional amounts for these items under guidance provided by SEC Staff Accounting Bulletin No. 118 (“SAB 118”). As a result, our estimates changed and revisions to these estimates were recorded during the measurement period allowed by SAB 118, which was not to extend beyond one year from the Enactment Date.

The provisional estimates related to our U.S. deferred income tax balances and Transition Tax changed due to a variety of factors that included, (i) actual versus estimates of accumulated earnings and profits associated with our foreign subsidiaries, (ii) utilization of our foreign income tax credits, (iii) the election of whether or not to apply our existing U.S. federal net operating loss carryforwards against the Transition Tax, (iv) actual versus estimates regarding the reversal of U.S. deferred income taxes occurring in fiscal 2018 based on our blended U.S. federal income tax rate of 30.4%

compared with our fully reduced U.S. federal income tax rate

of 21.0%

during fiscal 2019.

In order to determine the effects of the new U.S. federal corporate income tax rate on our U.S. deferred income tax balances during fiscal 2019 and 2018, ASC Topic 740 “Income Taxes” (ASC Topic 740), requires the re-measurement of our U.S. deferred income tax balances as of the Enactment Date of the Tax Act, based on income tax rates at which our U.S. deferred income tax balances are expected to reverse in the future. As a result, we recorded a provisional income tax charge of $2.2 million for the re-measurement of our U.S. net deferred income taxes during fiscal 2018. During the third quarter of fiscal 2019, we completed our assessment of the remeasurement of our U.S. deferred income tax balances in accordance with SAB 118 and recorded a final provisional income tax benefit of $

268

,000.

The Transition Tax was based on our total post-1986 foreign earnings and profits (“E&P”) that were previously deferred from U.S. income tax and applicable income tax rates associated with E&P held in cash and other specified assets (the “aggregate foreign cash position”). Also, E&P was not permanently reinvested prior to the Tax Act. As a result, we recorded a provisional income tax benefit of $4.3 million for the income tax effects of the Transition Tax during fiscal 2018. This $4.3 million income tax benefit related to an income tax benefit of $18.0 million for the release of deferred income tax liabilities related to E&P, an income tax benefit of $11.7 million related to the reduction in our U.S. Federal income tax rate pursuant to the Tax Act on the effective settlement of an IRS exam related to E&P, partially offset by an income tax charge for the write-off and the establishment of a valuation allowance against our unused foreign tax credits totaling $25.4 million. During the third quarter of fiscal 2019, we completed our assessment of the income tax effects of the Transition Tax and recorded a final provisional income tax benefit of $

282

,000. Additionally, we elected to pay the Transition Tax over a period of eight years in accordance with the Tax Act.

On June 14, 2019, the U.S. Treasury released proposed regulations regarding the GILTI provisions of the U.S. income tax code. The proposed regulations contain a provision for an exclusion from treatment as GILTI if taxable income amounts are subject to a high rate of foreign income tax, as defined in the proposed regulations. If an entity were to qualify for the high-income tax exception, the high-taxed income earned that would be subject to GILTI and U.S. income tax, may be excluded from U.S. income tax. However, since these regulations are in proposed form, an entity is not allowed to record an income tax benefit under these provisions until these regulations have been finalized.

In accordance with ASC Topic 740, we evaluate our deferred income taxes to determine if a valuation allowance is required. ASC Topic 740 requires that companies assess whether a valuation allowance should be established based on the consideration of all available evidence using a “more likely than not” standard with significant weight being given to evidence that can be objectively verified. Since the company operates in multiple jurisdictions, we assess the need for a valuation allowance on a jurisdiction-by-jurisdiction basis, taking into account the effects of local tax law.

(dollars in thousands)	2019			2018		2017
beginning balance	$	5,204			536		590
write off of deferred income taxes		(4,544	)		—		—
establishment of valuation allowance (1)		—			4,550		—
change in estimate (2)		88			118		(54	)
ending balance	$	748			5,204		536

In accordance with ASC Topic 740, we assess whether the undistributed earnings from our foreign subsidiaries will be reinvested indefinitely or eventually distributed to our U.S. parent company.

At April 28, 2019, we assessed the financial reporting requirements of our U.S. parent company and determined that our undistributed earnings from our foreign subsidiaries would not be reinvested indefinitely and would be eventually distributed to our U.S. parent company. ASC Topic 740 requires that a deferred tax liability should be recorded for undistributed earnings from foreign subsidiaries that will not be reinvested indefinitely. Also, we assess the recognition of U.S. foreign income tax credits associated with foreign withholding and income tax payments and whether it is more-likely-than-not that our foreign income tax credits will not be realized. If it is determined that any foreign income tax credits need to be recognized or it is more-likely-than-not our foreign income tax credits will not be realized, an adjustment to our provision for income taxes will be recognized at that time.

During fiscal 2018, the Tax Act imposed a Transition Tax on our undistributed E&P associated with our foreign subsidiaries. The Tax Act required us to determine E&P as of November 2, 2017 and December 31, 2017 (the “Measurement Dates”), in which the greater E&P amount of the Measurement Dates is subject to the Transition Tax. As a result, we had E&P prior to participation exemption totaling $157.1 million subject to the Transition Tax and $43.2 million of foreign tax credits that could be used to reduce the Transition Tax subject to certain limitations as defined in the Tax Act.

For fiscal 2019 and beyond, the Tax Act allows a U.S. corporation a 100% dividend received deduction for E&P received from a 10% owned foreign corporation. Therefore, a deferred tax liability will only be required for withholding taxes that are incurred by our foreign subsidiaries at the time E&P is distributed. As a result, we recorded a deferred tax liability for withholding taxes on undistributed E&P from our foreign subsidiaries totaling $3.5 million and $4.3 million at April 28, 2019 and April 29, 2018, respectively.

In accordance with ASC Topic 740, an unrecognized income tax benefit for an uncertain income tax position can be recognized in the first interim period if the more-likely-than-not recognition threshold is met by the reporting period, or is effectively settled through examination, negotiation, or litigation, or the statute of limitations for the relevant taxing authority to examine and challenge the tax position has expired. If it is determined that any of the above conditions occur regarding our uncertain income tax positions, an adjustment to our unrecognized income tax benefit will be recorded at that time.

(dollars in thousands)	2019			2018			2017
beginning balance	$	844			12,245			14,897
increases from prior period tax positions		135			350			854
decreases from prior period tax positions (1)		(76	)		(11,751	)		(3,506	)
increases from current period tax positions		—			—			—
ending balance	$	903			844			12,245

(1)

The $

11.8

million reduction in our unrecognized income tax benefits during fiscal 2018 is mostly associated with the reduction in our U.S. Federal income tax rate pursuant to the Tax Act on the effective settlement of an IRS exam. The $

3.5

million reduction in our unrecognized income tax benefits during fiscal 2017 was due to a lapse of applicable statute of limitations in a foreign jurisdiction.

At April 28, 2019, we had $903,000 of total gross unrecognized tax benefits, of which $523,000 would favorably affect the income tax rate in future periods. At April 29, 2018, we had $844,000 of total gross unrecognized tax benefits, of which $464,000 would favorably affect the income tax rate in future periods.

At April 28, 2019, we had $903,000 of total gross unrecognized tax benefits, of which $380,000 and $523,000 were classified as net non-current deferred income taxes and income taxes payable-long-term, respectively, in the accompanying Consolidated Balance Sheets. At April 29, 2018 we had $844,000 of total gross unrecognized tax benefits, of which $380,000 and $464,000 were classified as net non-current deferred income taxes and income taxes payable- long-term, respectively, in the accompanying Consolidated Balance Sheets.

Our gross unrecognized income tax benefit of $903,000 at April 28, 2019, relates to income tax positions for which significant change is currently not expected within the next year. This amount primarily relates to double taxation under applicable income tax treaties with foreign tax jurisdictions. United States federal income tax returns filed by us remain subject to examination for income tax years 2017 and subsequent. Canadian federal income tax returns filed by us remain subject to examination for income tax years 2015 and subsequent. Canadian provincial (Quebec) income tax returns filed by us remain subject to examination for income tax years 2016 and subsequent. Income tax returns associated with our operations located in China are subject to examination for income tax year 2014 and subsequent.

During the third quarter of fiscal 2017, Revenue Quebec commenced an examination of our Canadian provincial (Quebec) income tax returns for fiscal years 2013 through 2015. This examination was completed during the fourth quarter of fiscal 2018 with final adjustments totaling $4,000.

During the fourth quarter of fiscal 2016, the Internal Revenue Service commenced and examination of our U.S. Federal income tax returns for fiscal years 2014 through 2016. This examination was effectively settled during the fourth quarter of fiscal 2018 with

adjustment.