INCOME TAXES

The components of income (loss) before income taxes are as follows:



	2018		2017			2016
Domestic	$	6,139	$	(9,658	)	$	5,345
Foreign	38,084		32,669			28,167
Total income (loss) before income taxes	$	44,223	$	23,011		$	33,512

The income tax provision (benefit) is as follows:



	2018			2017			2016
Current
Federal	$	1,613		$	(1,493	)	$	3,169
State	565			156			138
Foreign	10,331			11,980			6,712
Deferred	(29,614		)	(12,716		)	(4,001		)
Income tax provision (benefit)	$	(17,105	)	$	(2,073	)	$	6,018

A reconciliation from the U.S. federal statutory income tax rate to our effective income tax rate is as follows:



	2018		2017		2016
U.S. federal statutory income tax rate	25	%	35	%	35	%
Impact from foreign operations	3		(10	)	(5	)
State income taxes, net of federal benefit	—		(1	)	—
R&D tax credits	(10	)	(22	)	(16	)
Domestic production activities deduction	(2	)	(10	)	(2	)
Impact of U.S. Tax Act	(57	)	—		—
Acquisition costs	—		(3	)	5
Nondeductible stock option expense and other permanent items	2		2		1
Effective income tax rate	(39	)%	(9	)%	18	%

The Tax Act was signed into law on December 22, 2017 and made significant changes to U.S. federal corporate tax law. Effective January 1, 2018, the Tax Act lowers the U.S. corporate tax rate from 35% to 21% and prompts various other changes to U.S. federal corporate tax law, including the establishment of a territorial-style system for taxing foreign-source income of domestic multinational corporations and a one-time deemed repatriation tax on untaxed foreign earnings. The Tax Act resulted in a U.S. federal blended statutory rate of 24.5% for fiscal year 2018. The income tax benefit for fiscal year 2018 included certain discrete benefits of $25,008 for the estimated impact of the Tax Act. The discrete benefits primarily related to $31,647 of estimated benefit from the remeasurement of our estimated net deferred tax liabilities, partially offset by $6,639 of estimated expense associated with the mandatory deemed repatriation tax.

Generally, the impacts of new tax legislation would be required to be recorded in the period of enactment, which was our first quarter of fiscal year 2018. However, in March 2018, the FASB issued ASU No. 2018-05 which incorporates various SEC paragraphs from SAB 118 into income tax accounting guidance effective immediately, allowing registrants to record provisional amounts during a one-year measurement period. The updated guidance summarizes a three-step process to be applied at each reporting period to account for and qualitatively disclose: (i) the effects of the change in tax law for which accounting is complete; (ii) provisional amounts (or adjustments to provisional amounts) for the effects of the tax law where accounting is not complete, but that a reasonable estimate has been determined; and (iii) if a reasonable estimate cannot yet be made and therefore taxes are reflected in accordance with law prior to the enactment of the Tax Act. See Note 1 for additional information on the adoption of this guidance.

As of September 29, 2018, we have not completed our accounting for the tax effects of the Tax Act. Our accounting for the tax effects of the Tax Act will be completed in our first quarter of fiscal year 2019.

Amounts recorded where the accounting is complete during fiscal year 2018 primarily relate to the reduction in the U.S. corporate income tax rate to 21%. We recorded an income tax benefit of $32,244 to remeasure deferred tax liabilities associated with intangible assets that will reverse at the new 21% rate.

Amounts recorded where the accounting is provisional during fiscal year 2018 include the remeasurement of other deferred taxes where the timing of the reversal cannot be known at this time. We have performed a provisional estimate of the net impact of remeasurement of other deferred tax assets and liabilities and recorded $597 income tax expense during fiscal year 2018. In addition, the Tax Act includes a one-time mandatory repatriation transition tax on the net accumulated earnings and profits of our foreign subsidiaries. We have performed a provisional estimate of this tax and recorded a $6,639 income tax provision during fiscal year 2018. The provisional amounts are based on information available at this time and may change due to a variety of factors, including, among others, anticipated guidance from the U.S. Department of Treasury, Internal Revenue Service and other standard setting and regulatory bodies.

We have completed our initial analysis of the impact of all provisions of the Tax Act expected to be effective in fiscal year 2018, and there are no anticipated effects where we have not yet recorded a provisional estimate of the accounting effect as of September 29, 2018.

The fiscal year 2018 effective tax rate was a benefit of 38.7% primarily due to certain discrete benefits of $25,008 for the estimated impact of the Tax Act. Excluding the impact of these discrete benefits, the effective tax rate for fiscal year 2018 was 17.9% and increased compared to the prior year rate excluding the impact of certain discrete benefits primarily due to higher current year earnings before taxes, partially offset by the lower U.S. corporate tax rate under the Tax Act.

The fiscal year 2017 effective tax rate was a benefit of 9.0% primarily due to certain discrete benefits of $2,801 recognized during the third quarter of fiscal year 2017, which consisted of additional U.S. tax benefits for prior fiscal years associated with domestic manufacturing, deductible PCB acquisition-related expenses, and the U.S. R&D tax credit. Excluding the impact of these discrete benefits, the effective tax rate for fiscal year 2017 was 3.2%.

The fiscal year 2016 effective tax rate was 18.0% and included a $2,283 discrete tax benefit for retroactive reinstatement of the U.S. R&D tax credit, partially offset by a one-time tax cost of $1,834 associated with nondeductible PCB acquisition-related expenses. Excluding the impact of these items, the effective tax rate for fiscal year 2016 was 19.3%.

A summary of the deferred tax assets and liabilities are as follows:



	2018			2017
Deferred tax assets
Accrued compensation and benefits	$	10,660		$	13,841
Inventory reserves	4,787			6,550
Other assets	4,255			4,920
Allowance for doubtful accounts	1,196			1,766
Net operating loss carryovers	516			227
State and foreign tax credit carryovers	1,252			3,358
Research and development tax credit carryovers	3,337			2,231
Total deferred tax asset before valuation allowance	26,003			32,893
Less valuation allowance	(4,792		)	(3,487		)
Total deferred tax assets	21,211			$	29,406
Deferred tax liabilities
Property and equipment	10,210			$	13,382
Foreign deferred revenue and other	4,649			3,009
Intangible assets	48,019			83,207
Unrealized derivative instrument gains	1,566			1,233
Total deferred tax liabilities	64,444			$	100,831
Net deferred tax assets (liabilities)	$	(43,233	)	$	(71,425	)

As of September 29, 2018, we had a Minnesota R&D tax credit carryover of $3,337, which may be carried forward fifteen years. We have determined that the benefit of this tax credit is not likely to be realized before it expires and have recorded a full valuation allowance against this deferred tax asset.

During fiscal year 2018, we repatriated $54,778 of current earnings from various foreign subsidiaries and recorded $1,249 of corresponding tax expense. During fiscal year 2017, we repatriated $15,272 of current earnings from our German and Japanese subsidiaries and recorded $11 of corresponding tax expense. During fiscal year 2016, we repatriated $10,324 of earnings from our German and Japanese subsidiaries and recorded a $112 corresponding tax benefit.

We have not recognized a deferred tax liability for the undistributed earnings of certain foreign operations because those subsidiaries have invested or will invest the undistributed earnings indefinitely. As of September 29, 2018 and September 30, 2017, undistributed earnings were $73,819 and $111,717, respectively. Because of the availability of U.S. foreign tax credits, it is impracticable for us to determine the amount of U.S. federal tax liability that would be payable if these earnings were not indefinitely reinvested. Deferred taxes are recorded for earnings of foreign operations when we determine that such earnings are no longer indefinitely reinvested.

A summary of changes to our liability for unrecognized tax benefits is as follows:



	2018			2017
Beginning liability for unrecognized tax benefits	$	5,849		$	6,232
Increase due to tax positions related to the current year	742			852
Increase (decrease) due to tax positions related to prior years	277			189
Decrease due to settlements with tax authorities	—			(493		)
Decrease due to lapse of statute of limitations	(710		)	(931		)
Ending liability for unrecognized tax benefits	$	6,158		$	5,849

Included in the liability of unrecognized tax benefits as of September 29, 2018 and September 30, 2017 are potential benefits of $3,740 and $3,234, respectively, that, if recognized, would affect the effective tax rate.

As of September 29, 2018 and September 30, 2017, we have accrued interest related to uncertain income tax positions of approximately $542 and $404, respectively. As of September 29, 2018 and September 30, 2017, no accrual for penalties related to uncertain tax positions existed. Interest and penalties related to uncertain tax positions are included in interest expense, net and general and administrative expense, respectively, in the Consolidated Statements of Income.

We are subject to U.S. federal income tax as well as income tax of numerous state and foreign jurisdictions. We are no longer subject to U.S. federal tax examinations for fiscal years before 2015 and with limited exceptions, state and foreign income tax examinations for fiscal years before 2014. As of September 29, 2018, we do not expect significant changes in the amount of unrecognized tax benefits for our U.S. or foreign subsidiaries during the next 12 months.

As of September 29, 2018 and September 30, 2017, we expected to receive income tax refunds within the next fiscal year. As a result, we recognized a current income tax receivable of $5,155 and $5,392 as of September 29, 2018 and September 30, 2017, respectively, which is included in prepaid expenses and other current assets in the Consolidated Balance Sheets.