15. Income Taxes

Income before income taxes consisted of (in thousands):



	Fiscal Years Ended
	March 25,		March 26,		March 28,
	2017		2016		2015
U.S.	$	137,654	$	108,133	$	133,295
Non-U.S.		177,393		67,856		(41,746)
	$	315,047	$	175,989	$	91,549

The provision (benefit) for income taxes consists of (in thousands):



	Fiscal Years Ended
	March 25,		March 26,		March 28,
	2017		2016		2015
Current:
U.S.	$	28,940	$	28,313	$	42,165
Non-U.S.		7,234		703		445
Total current tax provision	$	36,174	$	29,016	$	42,610

Deferred:
U.S.		2,576		18,242		2,136
Non-U.S.		15,088		5,101		(8,375)
Total deferred tax provision (benefit)		17,664		23,343		(6,239)
Total tax provision	$	53,838	$	52,359	$	36,371

The effective income tax rates differ from the rates computed by applying the statutory federal rate to pretax income as follows (in percentages):



	Fiscal Years Ended
	March 25,		March 26,		March 28,
	2017		2016		2015
U.S. federal statutory rate		35.0		35.0		35.0
Foreign income taxed at different rates		(8.6)		(0.6)		7.3
Research and development tax credits		(1.8)		(5.6)		(3.6)
Stock based compensation		(7.3)		-		-
Nondeductible expenses		-		0.1		2.3
Other		(0.2)		0.9		(1.3)
Effective tax rate		17.1		29.8		39.7

As disclosed in Note 2 – Summary of Significant Accounting Policies, the Company adopted ASU 2016-09 in the third quarter of fiscal year 2017. The effect of the adoption reduced the provision for income taxes by $22.9 million for the year ended March 25, 2017.

Significant components of our deferred tax assets and liabilities as of March 25, 2017 and March 26, 2016 are (in thousands):



	March 25,		March 26,
	2017		2016
Deferred tax assets:
Accrued expenses and allowances	$	9,002	$	3,761
Net operating loss carryforwards		6,294		24,592
Research and development tax credit carryforwards		13,977		9,649
Stock based compensation		17,356		16,071
Other		9,141		9,976
Total deferred tax assets	$	55,770	$	64,049
Valuation allowance for deferred tax assets		(12,570)		(10,773)
Net deferred tax assets	$	43,200	$	53,276

Deferred tax liabilities:
Depreciation and amortization	$	13,837	$	13,607
Acquisition intangibles		16,301		21,844
Total deferred tax liabilities	$	30,138	$	35,451
Total net deferred tax assets	$	13,062	$	17,825

Deferred tax assets and liabilities are recorded for the estimated tax impact of temporary differences between the tax basis and book basis of assets and liabilities. A valuation allowance is established against a deferred tax asset when it is more likely than not that the deferred tax asset will not be realized. The valuation allowance increased by $1.8 million in fiscal year 2017 with no material impact to income tax expense. The Company continued to record a valuation allowance on various state net operating losses and tax credits due to the likelihood that they will expire or go unutilized because the Company does not expect to recognize sufficient income in the jurisdictions in which the tax attributes were created. Management believes that the Company’s results from future operations will generate sufficient taxable income in the appropriate jurisdictions and of the appropriate character such that it is more likely than not that the remaining deferred tax assets will be realized.

At March 25, 2017, the Company had gross federal net operating loss carryforwards of $12.9 million, all of which related to acquired companies and are, therefore, subject to certain limitations under Section 382 of the Internal Revenue Code. The federal net operating loss carryforwards expire in fiscal years 2019 through 2034. The Company had $8.5 million of alternative minimum tax credit carryforwards that may be carried forward indefinitely. The Company also had $4.0 million of federal research and development credit carryforwards which will expire in 2037.

At March 25, 2017, the Company had gross state net operating loss carryforwards of $44.7 million. The state net operating loss carryforwards expire in fiscal years 2018 through 2033. In addition, the Company had $15.4 million of state research and development tax credit carryforwards. Certain of these state tax credits will expire in fiscal years 2022 through 2032. The remaining state tax credit carryforwards do not expire.

At March 25, 2017, the Company does not have any foreign operating loss carryforward.

At March 25, 2017, the undistributed earnings of our foreign subsidiaries of approximately $201.3 million are intended to be indefinitely reinvested outside the U.S. Accordingly, no provision for U.S. federal income and foreign withholding taxes associated with a distribution of these earnings has been made. The amount of unrecognized deferred tax liability related to these undistributed earnings is estimated to be $65.5 million.

The following table summarizes the changes in the unrecognized tax benefits (in thousands):



	March 25,		March 26,
	2017		2016
Beginning balance	$	18,796	$	-
Additions based on tax positions related to the current year		12,127		12,592
Additions based on tax positions related to prior years		-		6,204
Reductions based on tax positions related to the prior years		(65)		-
Ending balance	$	30,858	$	18,796

The Company records unrecognized tax benefits for the estimated risk associated with tax positions taken on tax returns. At March 25, 2017, the Company had gross unrecognized tax benefits of $30.9 million, all of which would impact the effective tax rate if recognized. The Company believes it is reasonably possible that the gross unrecognized tax benefits could decrease by approximately $2.3 million in the next 12 months due to the lapse of the statute of limitations applicable to a tax deduction claimed on a prior year tax return. During fiscal year 2017, the Company had gross increases of $12.1 million related to current year unrecognized tax benefits, as well as a $0.1 million decrease related to tax positions taken in prior years. The Company’s unrecognized tax benefits are classified as “Other long-term liabilities” in the Consolidated Balance Sheet.

The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes. During fiscal year 2017 we recognized interest expense, net of tax, of approximately $0.2 million. No interest or penalties were recognized during fiscal year 2016.

The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax in multiple state and foreign jurisdictions. Fiscal years 2014 through 2017 remain open to examination by the major taxing jurisdictions to which the Company is subject, although carry forward attributes that were generated in tax years prior to fiscal year 2014 may be adjusted upon examination by the tax authorities if they have been, or will be, used in a future period. The Company is not currently under an income tax audit in any major taxing jurisdiction.