Income tax expense (benefit) from continuing operations for fiscal 2018, 2017 and 2016 consisted of:

In Thousands	2018			2017			2016

Current
U.S. Federal	$	46,421		$	2,914		$	13,848
State		(120	)		146			(852	)
Foreign		43,868			38,179			30,409
		90,169			41,239			43,405

Deferred
U.S. Federal		4,750			2,744			(6,893	)
State		348			(157	)		2,060
Foreign		(11,440	)		(10,801	)		(16,715	)
		(6,342	)		(8,214	)		(21,548	)
Income tax expense	$	83,827		$	33,025		$	21,857

U.S. and foreign components of earnings from continuing operations before income taxes for fiscal 2018, 2017 and 2016 were:

In Thousands	2018		2017		2016

U.S.	$	42,507	$	39,119	$	66,036
Foreign		111,069		114,275		69,989
Earnings from continuing operations before income taxes	$	153,576	$	153,394	$	136,025

Primary components of the Company’s deferred tax assets and liabilities at the end of the fiscal 2018 and 2017 resulted from temporary tax differences associated with the following:

In Thousands	2018			2017

Reserves and liabilities	$	35,258		$	52,632
Loss carryforwards		37,850			53,175
Tax credit carryforwards		35,308			39,078
Employee benefits		10,197			12,720
Retirement benefits		6,086			14,907
Non-qualified stock options		7,470			10,937
Hedging activities		2,614			-
Other		3,105			3,940
Total deferred tax assets		137,888			187,389
Less valuation allowance		(27,118	)		(45,601	)
Total deferred tax assets, net of valuation allowance		110,770			141,788

Depreciation and amortization		(18	)		(6,503	)
Intangibles and amortization		(85,072	)		(111,196	)
Deferred costs		(3,697	)		(5,668	)
Hedging activities		-			(2,450	)
Other		(6,874	)		(3,156	)
Total deferred tax liabilities		(95,661	)		(128,973	)
Net deferred tax assets (liabilities)	$	15,109		$	12,815

The Company operates in numerous taxing jurisdictions and is subject to regular examinations by various U.S. federal, state and foreign jurisdictions. Additionally, the Company assumed tax liabilities and the rights to tax refunds in connection with various acquisitions and divestitures of businesses in prior years. The Company’s income tax positions are based on research and interpretations of income tax laws in each of the jurisdictions in which the Company does business. Due to the subjectivity and complexity of the interpretations of the tax laws in each jurisdiction, the differences and interplay in the tax laws between those jurisdictions, as well as the inherent uncertainty in estimating the final resolution of complex tax audit matters, the Company’s estimates of income tax liabilities and assets may differ from actual payments, assessments or refunds.

Management believes that it is more likely than not that the Company will realize the benefit of most of its deferred tax assets. Significant factors management considered in determining the probability of the realization of the deferred tax assets include expected future earnings and the reversal of deferred tax liabilities. Accordingly, no valuation allowance has been recorded on the deferred tax assets other than certain tax credits, capital losses and net operating losses. The U.S. federal capital loss carryforward of $106.8 million will begin to expire in fiscal 2020 if not utilized. The foreign net operating loss of $45.4 million can be carried forward indefinitely. The majority of the tax credit carryforwards can be carried forward indefinitely.

U.S. and various state and foreign income tax returns are open to examination, and presently there are foreign and state income tax returns under examination. Such examinations could result in challenges to tax positions taken, and accordingly, the Company may record adjustments to provisions based on the outcomes of such matters. However, the Company believes that the resolution of these matters, after considering amounts accrued, will not have a material adverse effect on its consolidated financial statements.

The incremental tax benefit received by the Company upon exercise of non-qualified employee stock options was $0.5 million, $2.1 million, and $0.6 million in fiscal 2018, 2017, and 2016, respectively.

A reconciliation of the U.S. federal statutory income tax rate to the effective income tax rate for fiscal 2018, 2017 and 2016 was as follows:

	2018			2017			2016

U.S. statutory income tax rate		24.6	%		35.0	%		35.0	%
Foreign taxes		-1.6	%		-1.5	%		-10.3	%
Difference in foreign tax rates		4.2	%		-4.2	%		-4.4	%
Mandatory repatriation tax		25.5	%		0.0	%		0.0	%
Revaluation of deferred tax assets		4.4	%		0.0	%		0.0	%
Unremitted earnings		2.3	%		0.0	%		0.0	%
Change in foreign tax rates and laws		0.3	%		-2.9	%		0.0	%
Research and development credits		-2.3	%		-3.5	%		-5.2	%
Domestic manufacturing deduction		-1.0	%		-0.3	%		-1.0	%
Net change in tax reserves		0.1	%		-0.3	%		-0.2	%
State income taxes		-0.1	%		0.5	%		0.2	%
Valuation allowance		-3.4	%		-0.3	%		0.8	%
Subpart F income		0.7	%		0.5	%		0.7	%
Other, net		0.9	%		-1.5	%		0.5	%
Effective income tax rate		54.6	%		21.5	%		16.1	%

The Tax Cuts and Jobs Act (the Act) was enacted on December 22, 2017. The Act reduces the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings.

The increase in the year-over-year effective tax rate for fiscal 2018 is primarily attributable to the Act. The SEC recognized that a company’s review of certain income tax effects of the Act may be incomplete at the time financial statements are issued. Accordingly, the SEC issued Staff Accounting Bulletin 118, which provides that if a company does not have the necessary information available for certain effects of the Act, the Company may record provisional numbers and adjust those amounts during the measurement period not to extend beyond one year.

At September 28, 2018, the Company had not completed the accounting for the tax effects of enactment of the Act; however, in certain cases, as described below, the Company made a reasonable estimate of the effects on its existing deferred tax balances, the one-time transition tax, and unremitted foreign earnings. During fiscal 2018, the Company recorded a provisional net charge of $49.9 million related to the Act based on reasonable estimates for those tax effects. Due to the timing of the enactment and the complexity in applying the provisions of the Act, the provisional net charge is subject to revisions as the Company continues to complete the analysis of the Act, collect and prepare necessary data, and interpret any additional guidance issued by the U.S. Treasury Department, Internal Revenue Service (“IRS”), FASB, and other standard-setting and regulatory bodies. Adjustments may materially impact the Company’s provision for income taxes and effective tax rate in the period in which the adjustments are made. The Company’s accounting for the estimated tax effects of the Act will be completed during the measurement period, which is not expected to extend beyond one year from the enactment date. The impacts of the Company’s estimates are described further below.

The Company remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. However, the Company is still analyzing certain aspects of the Act and refining its calculations, including evaluation of limits on employee remuneration, which could affect the measurement of these balances or potentially give rise to new deferred tax amounts. The provisional amount recorded related to the remeasurement of the deferred tax balance was $7.2 million.

The Company recorded an estimated $39.2 million charge in fiscal 2018 related to the transition tax, which was included in the provision for income taxes in the consolidated income statements and income taxes in the consolidated balance sheets. The Company has not yet completed the accounting for the transition tax as the analysis of deferred foreign income is not complete. To calculate the transition tax, the Company estimated the deferred foreign income for fiscal 2018 because these tax returns are not complete or due. Fiscal 2018 taxable income will be known once the respective tax returns are completed and filed. In addition, U.S. and foreign audit settlements may significantly impact the estimated transition tax. The impact of the U.S. and foreign audits on the transition tax will be known as the audits are concluded.

The Act subjects a U.S. corporation to tax on its Global Intangible Low Taxed Income (GILTI). Due to the complexity of the new GILTI tax rules, the Company is continuing to evaluate this provision of the Act and the application of GAAP. Under GAAP, the Company can make an accounting policy election to either treat taxes due on the GILTI inclusion as a current period expense or factor such amounts into the measurement of deferred taxes. The Company elected the current period expense method and has not reflected any corresponding deferred tax assets and liabilities associated with GILTI in the table of deferred income tax assets and liabilities.

On August 9, 2018, the Department of Treasury published in the Federal Register proposed regulations relating to the transition tax imposed by the Act. On October 10, 2018, the Department of Treasury published in the Federal Register proposed regulations relating to GILTI imposed by the Act. Once published in the Federal Register, the proposed regulations are subject to a 60-day comment period. Final regulations are expected to be issued after consideration of comments. The Company is currently evaluating the impact of the proposed regulations.

In February 2018, the FASB issued new guidance to allow a reclassification from accumulated other comprehensive income (“AOCI”) to retained earnings for stranded tax effects resulting from the Act. In the fourth quarter of fiscal 2018, the Company remeasured deferred taxes related to pension and post-retirement obligations using the reduced tax rate. As required by U.S. GAAP, the Company recognized the net tax benefit in the provision for income taxes in the Company’s consolidated statement of operations, even though the deferred taxes were initially recognized in AOCI, which resulted in stranded tax effects. The Company elected to early adopt the standard effective June 30, 2018 and reclassified a $7.7 million net tax benefit from AOCI to retained earnings in the consolidated balance sheet. Adoption of the standard had no impact to the Company’s consolidated statements of operations or cash flows statements.

The Company recorded a provisional amount of $3.5 million of tax expense on the Company’s foreign earnings, which previously had been deferred from U.S. income tax. The provisional amounts may change as new information becomes available, as the Act continues to be interpreted and as new technical guidance is issued. The amount of undistributed foreign earnings which the Company remains indefinitely reinvested at September 28, 2018, is approximately $483.0 million. The amount of deferred income taxes is not practical to compute due to the complexity of the Company’s international holding company structure, layers of regulatory requirements that have to be evaluated to determine the amount of allowable dividends, numerous potential repatriation scenarios that could be created to facilitate the repatriation of earnings to the U.S., and the complexity of computing foreign tax credits.

A reconciliation of the amount of unrecognized tax benefits for fiscal 2018, 2017 and 2016 is as follows:

In Thousands	2018			2017			2016

Unrecognized tax benefits as of the beginning of year	$	8,848		$	7,877		$	11,389
Unrecognized gross benefit change:
Gross increase due to prior-period adjustments		-			1,608			445
Gross decrease due to prior-period adjustments		(2,140	)		-			(475	)
Gross increase due to current-period adjustments		738			853			1,475
Gross decrease due to settlements with taxing authorities		(240	)		-			(2,068	)
Gross decrease due to a lapse of the statute of limitations		(1,122	)		(1,490	)		(2,889	)
Total change in unrecognized gross benefit		(2,764	)		971			(3,512	)
Unrecognized tax benefits as of the end of the fiscal year	$	6,084		$	8,848		$	7,877

Unrecognized tax benefits that, if recognized, would impact the effective tax rate	$	5,240		$	4,888		$	6,626

Statement of operations:
Total amount of interest income (expense) included in income tax expense	$	(289	)	$	33		$	(308	)

Recognized in the statement of financial position:
Total amount of accrued interest included in income taxes payable	$	326		$	616		$	583

During the next 12 months it is reasonably possible that approximately $0.8 million of previously unrecognized tax benefits related to operating losses and tax credits could decrease as a result of settlement of examinations and/or the expiration of statutes of limitations. The Company recognizes interest related to unrecognized tax benefits in income tax expense.

The Company is no longer subject to income tax examinations by tax authorities in its major tax jurisdictions as follows: