16.	INCOME TAXES

Income before income taxes was as follows:

	Year Ended September 30,
		2018	2017			2016
Domestic	$	46,254		$	33,272		$	7,130
Foreign		115,457			76,100			63,308
Total	$	161,711		$	109,372		$	70,438

Taxes on income consisted of the following:

	Year Ended September 30,
	2018		2017			2016
U.S. federal and state:
Current	$	14,698	$	8,606		$	609
Deferred		10,347		1,550			(1,465	)
Total	$	25,045	$	10,156		$	(856	)

Foreign:
Current	$	26,135	$	13,422		$	11,737
Deferred		488		(1,158	)		(292	)
Total		26,623		12,264			11,445
Total U.S. and foreign	$	51,668	$	22,420		$	10,589

The provision for income taxes at our effective tax rate differed from the statutory rate as follows:

	Year Ended September 30,
	2018		2017		2016
Federal statutory rate		24.5%		35.0%		35.0%
U.S. benefits from research and experimentation activities		(0.8)		(1.0)		(3.5)
State taxes, net of federal effect		0.1		0.4		(0.1)
Foreign income at other than U.S. rates		1.2		(14.7)		(16.9)
Executive compensation		0.4		0.3		0.0
Share-based compensation		(4.3)		0.1		0.7
U.S. tax reform		11.2		0.0		0.0
Domestic production deduction		(0.2)		0.0		(1.3)
Other, net		(0.1)		0.4		1.1
Provision for income taxes		32.0%		20.5%		15.0%

The significant increase in our effective tax rate for fiscal 2018 was primarily driven by the changes introduced by the Tax Cuts and Jobs Act in the United States ("the Tax Act") in December 2017, which includes the deemed repatriation tax (transition tax). The Company made the decision to take the dividends received deduction (DRD) on its fiscal 2018 tax return and accordingly reflected a section 245A DRD with respect to the section 78 gross-up in its transition tax calculation. This benefit may be reduced or eliminated in future legislation. If such legislation is enacted, we will record the impact of the legislation in the quarter of enactment. Other factors that impacted the Company's effective tax rate for fiscal 2018 were primarily related to benefits in excess of compensation cost from share-based compensation recorded in the income statement (as opposed to equity prior to October 2017) and the absence of benefits of a tax holiday in South Korea that expired as of October 2017.

The increase in the effective tax rate during fiscal 2017 was primarily due to the absence of the retroactive reinstatement of the research and experimentation tax credit recorded in fiscal 2016, and changes in the jurisdictional mix of income.

The Tax Act includes broad and complex changes to the U.S. tax code, including but not limited to: (1) reducing the U.S. federal corporate income tax rate to 21.0% effective January 1, 2018; and (2) requiring a one-time transition tax on certain un-repatriated earnings of foreign subsidiaries that is payable over eight years. For fiscal 2018, we recorded our income tax provision using a blended U.S. statutory tax rate of 24.5%, which is based on a proration of the applicable tax rates before and after the Tax Act. The U.S. statutory tax rate of 21.0% will apply for fiscal 2019 and beyond.

As a result of the Tax Act, the SEC staff issued accounting guidance that provides up to a one-year measurement period during which a company may complete its accounting for the impacts of the Tax Act (SAB 118). To the extent that a company's accounting for certain income tax effects of the Tax Act is incomplete but for which the company is able to determine a reasonable estimate, it must record a provisional estimate in its financial statements. If a company cannot determine a provisional estimate to be included in its financial statements, it should continue to apply the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act. The final impact of the Tax Act may differ from the provisional estimates due to changes in interpretations of the Tax Act, any legislative action to address questions that arise because of the Tax Act, by changes in accounting standard for income taxes and related interpretations in response to the Tax Act, and any updates or changes to estimates used in the provisional amounts.

In connection with our analysis of the impact of the Tax Act, we recorded total tax expense of $18,178 for the year ended September 30, 2018. This amount is comprised of $11,340 of the U.S. transition tax on accumulated earnings of foreign subsidiaries, $5,555 of foreign withholding tax, and $1,283 of tax expense for re-measurement of deferred taxes. We have determined that these amounts were each provisional amounts and reasonable estimates for fiscal 2018. Estimates used in the provisional amounts include earnings, cash positions, foreign income taxes and withholding taxes attributable to foreign subsidiaries. The amounts recorded are reasonable estimates and are discussed more fully below.

Deemed Repatriation Transition Tax: The Deemed Repatriation Transition Tax (Transition Tax) is a tax on previously untaxed accumulated and current earnings and profits (E&P) of certain of our foreign subsidiaries. To determine the amount of the Transition Tax, we must determine, in addition to other factors, the amount of post-1986 E&P of the relevant subsidiaries, as well as the amount of non-U.S. taxes on such earnings. We were able to make a reasonable estimate, and recorded $11,340 of Transition Tax, which included U.S. federal and state tax implications, for the year ended September 30, 2018. In addition, we also recorded a provisional estimate of $5,555 for non-U.S. withholding taxes to be incurred on actual and future distributions of foreign earnings. We are monitoring U.S. federal and state legislative developments for further interpretative guidance and may further refine provisional estimates during the measurement period provided under SAB 118. Previously, the Company maintained an assertion to permanently reinvest the earnings of its non-U.S. subsidiaries outside of the U.S., with certain insignificant exceptions, and therefore, did not record U.S. deferred income taxes or foreign withholding taxes for these earnings. In light of the Tax Act and the associated transition to a modified territorial tax system, the Company no longer considered its foreign earnings to be indefinitely reinvested and repatriated $197,932 in fiscal 2018, and plan to repatriate foreign earnings on an ongoing basis. Consequently, the Company recorded deferred tax liabilities associated with withholding taxes on actual and future distribution of such earnings.

Reduction of U.S. Federal Corporate Tax Rate: The Company re-measured its U.S. deferred tax assets and liabilities and recorded tax expense of $1,283 based on the rates at which the deferred tax assets and liabilities are expected to reverse in the future. We are still analyzing certain aspects of the Tax Act and the actual impact of the reduction in the U.S. federal corporate tax rate may be affected by the timing of the reversal of such balances.

The Company is also analyzing other provisions of the Tax Act to determine their impact on the Company's effective tax rate in fiscal year 2019 or in the future, including the following:

Global Intangible Low Taxed Income (GILTI): Tax Act includes a provision designed to tax GILTI, which we are continuing to evaluate. Under U.S. GAAP, we are allowed to make an accounting policy choice of either: (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the "period cost method"); or, (2) factoring such amounts into a company's measurement of its deferred taxes (the "deferred method"). We have not yet made the accounting policy election, and we are not yet able to reasonably estimate the effect of the GILTI provision and have not made any adjustments related to potential GILTI tax in our financial statements. If applicable, GILTI tax would first apply to our fiscal year 2019 and would be accounted for as incurred under the period cost method.

Base Erosion and Anti-Abuse Tax (BEAT): The Tax Act creates a new minimum BEAT liability for corporations that make base erosion payments if the corporation has sufficient gross receipts and derives a sufficient level of "base erosion tax benefits". We are further assessing the provisions of the BEAT and will evaluate the effects on the Company's financial statements as further information becomes available. If applicable, any BEAT would first apply to the Company in fiscal year 2019 and would be accounted for as incurred under the period cost method.

Foreign Derived Intangible Income (FDII): The Tax Act allows a domestic corporation an immediate deduction in U.S. taxable income for a portion of its FDII. The amount of the deduction will depend in part on the Company's U.S. taxable income. We are still assessing the benefits of the FDII deduction. If applicable, the FDII deduction would first be available to the Company in fiscal year 2019 and would be accounted for under the period cost method.

The Company previously operated under a tax holiday in South Korea in fiscal years 2013 through 2017 in conjunction with our investment in research, development and manufacturing facilities there, which expired at the end of fiscal year 2017. This arrangement allowed for a tax at 50% of the local statutory rate in effect for fiscal years 2016 and 2017, following a 0% tax rate in fiscal years 2013, 2014 and 2015. This tax holiday reduced our fiscal 2017 and 2016 income tax provision by approximately $5,018 and $3,771, respectively. This holiday increased our fiscal 2017 and 2016 diluted earnings per share by approximately $0.20 and $0.15, respectively.

The accounting guidance regarding uncertainty in income taxes prescribes a threshold for the financial statement recognition and measurement of tax positions taken or expected to be taken on a tax return. Under these standards, we may recognize the tax benefit of an uncertain tax position only if it is more likely than not that the tax position will be sustained by the taxing authorities, based on the technical merits of the position.

The following table presents the changes in the balance of gross unrecognized tax benefits during the last three fiscal years:

Balance September 30, 2015	$	1,773
Additions for tax positions relating to the current fiscal year		364
Additions for tax positions relating to prior fiscal years		200
Settlements with taxing authorities		(248	)
Balance September 30, 2016		2,089
Additions for tax positions relating to the current fiscal year		381
Additions for tax positions relating to prior fiscal years		44
Lapse of statute of limitations		(244	)
Balance September 30, 2017		2,270
Additions for tax positions relating to the current fiscal year		263
Additions for tax positions relating to prior fiscal years		116
Lapse of statute of limitations		(1,215	)
Balance September 30, 2018	$	1,434

The entire balance of unrecognized tax benefits shown above as of September 30, 2018 and 2017, would affect our effective tax rate if recognized. We recognize interest and penalties related to uncertain tax positions as income tax expense in our financial statements. Interest accrued on our Consolidated Balance Sheet was $69 and $100 at September 30, 2018 and 2017, respectively, and any interest and penalties charged to expense in fiscal years 2018, 2017 and 2016 was not material.

At September 30, 2018, the tax periods open to examination by the U.S. federal government included fiscal years 2015 through 2018. We believe the tax periods open to examination by U.S. state and local governments include fiscal years 2014 through 2018 and the tax periods open to examination by foreign jurisdictions include fiscal years 2013 through 2018. We do not anticipate a significant change to the total amount of unrecognized tax benefits within the next 12 months.

Significant components of net deferred tax assets and liabilities were as follows:

	September 30,
	2018			2017
Deferred tax assets:
Employee benefits	$	3,995		$	5,307
Inventory		2,526			2,863
Bad debt reserve		361			585
Share-based compensation expense		5,379			6,611
Credit and other carryforwards		6,419			22,663
Other		1,336			1,488
Valuation allowance		(133	)		(2,271	)
Total deferred tax assets	$	19,883		$	37,246

Deferred tax liabilities:
Depreciation and amortization	$	8,007		$	14,671
Withholding on transition taxes		5,209			-
Translation adjustment		-			300
Other		908			739
Total deferred tax liabilities	$	14,124		$	15,710

As of September 30, 2018, the Company had foreign and federal net operating loss carryforwards (NOLs) of $2,163 and $14,765, respectively, which will expire over the period between fiscal year 2019 and fiscal year 2038, for which we have recorded a $423 gross valuation allowance, all of which was attributable to foreign NOLs. The majority of the federal and state NOLs are attributable to the NexPlanar acquisition. As of September 30, 2018, the Company had a state tax credit carryforward of $74 and no capital loss carryforwards. As of September 30, 2018, the Company had a federal tax credit carryforward of $737, which will expire beginning in fiscal years 2028 through 2038.