14.) INCOME TAXES

The U.S. and international components of income (loss) before provision for income taxes for fiscal years 2016, 2015 and 2014 were as follows (in thousands):



	2016			2015			2014
U.S.	$	(52,446	)	$	(42,166	)	$	56,801
International	53,631			26,466			19,778
Total income (loss) before provision (benefit) for income taxes	$	1,185		$	(15,700	)	$	76,579

The provision (benefit) for income taxes for fiscal years 2016, 2015 and 2014 was comprised of the following (in thousands):



	2016			2015			2014
Current:
Federal	$	(8,327	)	$	(3,753	)	$	16,293
State	149			(367		)	1,299
International	10,752			6,312			2,998
	2,574			2,192			20,590
Deferred:
Federal	(4,952		)	(8,144		)	1,211
State	(638		)	(880		)	(310		)
International	(1,760		)	(1,274		)	(370		)
	(7,350		)	(10,298		)	531
Total provision (benefit) for income taxes	$	(4,776	)	$	(8,106	)	$	21,121

The provision (benefit) for income taxes differs from the U.S. statutory rate for fiscal years 2016, 2015 and 2014 due to the following:



	2016					2015					2014
Statutory rate	$	415		35.0	%	$	(5,495	)	35.0	%	$	26,803		35.0	%
Federal tax credits	(1,792		)	(151.2	)	(1,850		)	11.8		(1,600		)	(2.1	)
Foreign rate differential	(7,086		)	(598.0	)	(3,180		)	20.2		(3,276		)	(4.3	)
Uncertain tax positions	1,724			145.5		(531		)	3.4		412			0.6
State taxes, net of federal benefit	(1,068		)	(90.1	)	(1,490		)	9.5		507			0.7
Change in foreign tax rates	(270		)	(22.8	)	(91		)	0.6		(446		)	(0.6	)
Non-deductible transaction costs	1,012			85.4		4,867			(31.0	)	—			—
Valuation allowance	1,340			113.1		626			(4.0	)	(299		)	(0.4	)
Change in tax law (Internal Revenue Code §987)	2,630			221.9		—			—		—			—
Other	(1,681		)	(141.8	)	(962		)	6.1		(980		)	(1.3	)
Effective tax rate	$	(4,776	)	403.0	%	$	(8,106	)	51.6	%	$	21,121		27.6	%

(14.) INCOME TAXES (Continued)

Deferred tax assets (liabilities) consist of the following (in thousands):



	December 30, 2016			January 1, 2016
Net operating loss carryforwards	$	154,706		$	153,949
Tax credit carryforwards	24,646			22,196
Inventories	7,524			6,543
Accrued expenses	5,724			13,138
Stock-based compensation	10,614			9,512
Other	936			38
Gross deferred tax assets	204,150			205,376
Less valuation allowance	(35,391		)	(39,171		)
Net deferred tax assets	168,759			166,205
Property, plant and equipment	(33,069		)	(32,772		)
Intangible assets	(337,722		)	(347,896		)
Convertible subordinated notes	(2,577		)	(3,754		)
Gross deferred tax liabilities	(373,368		)	(384,422		)
Net deferred tax liability	$	(204,609	)	$	(218,217	)
Presented as follows:
Noncurrent deferred tax asset	$	3,970		$	3,587
Noncurrent deferred tax liability	(208,579		)	(221,804		)
Net deferred tax liability	$	(204,609	)	$	(218,217	)

As of December 30, 2016, the Company has the following carryforwards available:



Jurisdiction	Tax Attribute	Amount (in millions)		Begin to Expire
Federal	Net Operating Loss	$	388.6	2019
International	Net Operating Loss	43.0		2017
State	Net Operating Loss	276.4		2017
Federal	Foreign Tax Credit	17.0		2019
U.S. and State	R&D Tax Credit	4.9		2018
State	Investment Tax Credit	6.0		2016

Certain U.S. tax attributes are subject to limitations of Internal Revenue Code §382, which in general provides that utilization is subject to an annual limitation if an ownership change results from transactions increasing the ownership of certain shareholders or public groups in stock of a corporation by more than 50 percentage points over a three- year period. Such an ownership change occurred upon the consummation of the acquisition of Lake Region Medical. The Company does not anticipate that these limitations will affect utilization of these carryforwards prior to their expiration.

The Company’s federal net operating loss carryforward and certain other federal tax credits reported on its income tax returns included uncertain tax positions taken in prior years. Due to the application of the accounting for uncertain tax positions, the actual tax attributes are larger than the tax amounts for which a deferred tax asset is recognized for financial statement purposes.

In assessing the realizability of deferred tax assets, management considers, within each taxing jurisdiction, whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on the consideration of the weight of both positive and negative evidence, management has determined that a portion of the deferred tax assets as of December 30, 2016 and January 1, 2016 related to certain foreign tax credits, state investment tax credits, and foreign and state net operating losses will not be realized.

(14.) INCOME TAXES (Continued)

On December 7, 2016, the U.S. Treasury and the Internal Revenue Service (“IRS”) issued final and temporary regulations under Internal Revenue Code §987 (the “Regulations”). These Regulations address the taxation of foreign currency translation gains or losses arising from qualified business units (“QBUs”) (such as branches and certain other flow-through entities) that operate in a currency other than the currency of their owner. The Company has measured the impact of the regulations by applying the “Fresh Start Transition Method” as prescribed by the Regulations, and adjusted the carrying value of its deferred tax accounts accordingly. The adjustment to the carrying value of the deferred tax accounts was recorded as a component of Provision (Benefit) for Income Taxes attributable to continuing operations in the current year.

The Company files annual income tax returns in the U.S., various state and local jurisdictions, and in various foreign jurisdictions. A number of years may elapse before an uncertain tax position, for which the Company has unrecognized tax benefits, is examined and finally settled. While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, the Company believes that its unrecognized tax benefits reflect the most probable outcome. The Company adjusts these unrecognized tax benefits, as well as the related interest, in light of changing facts and circumstances. The resolution of an uncertain tax position, if recognized, would be recorded as an adjustment to the Provision (Benefit) for Income Taxes and the effective tax rate in the period of resolution.

Below is a summary of changes to the unrecognized tax benefit for fiscal years 2016, 2015 and 2014 (in thousands):



	2016			2015			2014
Balance, beginning of year	$	9,271		$	2,411		$	1,858
Reductions (additions) relating to business combinations	(400		)	7,443			—
Additions based upon tax positions related to the current year	1,450			274			268
Additions related to prior period tax positions	240			163			510
Reductions relating to settlements with tax authorities	—			(550		)	(225		)
Reductions as a result of a lapse of applicable statute of limitations	—			(470		)	—
Balance, end of year	$	10,561		$	9,271		$	2,411

Integer and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The tax years that remain open and subject to tax audits varies depending on the tax jurisdiction. The Internal Revenue Service finalized an audit of the 2012 and 2013 U.S. Federal income tax returns of the Company in the first quarter of 2015. The impact to the income tax expense was not material. The U.S. subsidiaries of the former Lake Region Medical Group are still subject to U.S. federal, state, and local examinations for the taxable years 2006 to 2014.

It is reasonably possible that a reduction of approximately $0.6 million of the balance of unrecognized tax benefits may occur within the next twelve months as a result of the lapse of the statute of limitations and/or audit settlements. As of December 30, 2016, approximately $9.8 million of unrecognized tax benefits would favorably impact the effective tax rate (net of federal impact on state issues), if recognized.

The Company recognizes interest related to unrecognized tax benefits as a component of Provision (Benefit) for Income Taxes on the Consolidated Statements of Operations and Comprehensive Income (Loss). During 2016, 2015 and 2014, the recorded amounts for interest and penalties, respectively, were not significant.

As of December 30, 2016, no taxes have been provided on the undistributed earnings of certain foreign subsidiaries amounting to $102.3 million. The Company intends to permanently reinvest these earnings. Quantification of the deferred tax liability associated with these undistributed earnings is not practicable.