(

)

Income Taxes

The provision for income taxes includes federal, state, local and foreign taxes. The Company

’s effective tax rate varies from period to period due to the proportion of foreign and domestic pre-tax income expected to be generated by the Company. The Company provides for income taxes for its domestic operations at a statutory rate of

35%

and for its foreign operations at a statutory rate of

30%

2017

and

2016.

Reconciling items between the federal statutory rate and the effective tax rate also include the expected usage of federal net operating loss carryforwards, state income taxes, valuation allowances and certain other permanent differences.

The Company recognizes liabilities or assets for the deferred tax consequences of temporary differences between the tax bases of assets or liabilities and their reported amounts in the financial statements in accordance with ASC

740,

Income Taxes (ASC

740

). These temporary differences will result in taxable or deductible amounts in future years when the reported amounts of assets or liabilities are recovered or settled. ASC

740

requires that a valuation allowance be established when it is more likely than

not

that all or a portion of a deferred tax asset will

not

be realized. The Company evaluates its deferred tax position on a quarterly basis and valuation allowances are provided as necessary. During this evaluation, the Company reviews its forecast of income in conjunction with other positive and negative evidence surrounding the realizability of its deferred tax assets to determine if a valuation allowance is needed. Based on its current forecast, the Company has established a valuation allowance against the domestic and foreign net deferred tax asset. Until an appropriate level and characterization of profitability is attained, the Company expects to continue to maintain a valuation allowance on its net deferred tax assets related to future U.S. and non-U.S. tax benefits.

As of

October 1,

2017

and

December

31,

2016,

the Company has

undistributed earnings of foreign subsidiaries that are classified as permanently reinvested. The Company did

not

repatriate any funds to the U.S. during

2016

and expects the repatriation of any available non-U.S. cash holdings during

2017

will be limited to the amount of undistributed earnings as of

December 31, 2016.

The loss recognized by the Company’s Mexican operations during

2016

and the

first

nine

months of

2017

reduced the undistributed earnings of that entity and the Company has therefore recognized a deferred income tax benefit equal to the reduction in the U.S deferred tax liability and a corresponding increase in the deferred tax asset valuation allowance. Should the U.S. valuation allowance be released at some future date, the U.S. tax on foreign earnings

not

permanently reinvested might have a material effect on our effective tax rate.