Income Taxes

The domestic and foreign components of income (loss) before income tax expense for fiscal 2016, 2015 and 2014 were as follows (in thousands):



	2016			2015			2014
U.S.	$	(26,796	)	$	(32,480	)	$	(12,473	)
Foreign	114,190			138,775			105,798
	$	87,394		$	106,295		$	93,325

Income tax expense (benefit) for fiscal 2016, 2015 and 2014 were as follows (in thousands):



	2016			2015			2014
Current:
Federal	$	—		$	—		$	(2,050	)
State	(15		)	(397		)	(332		)
Foreign	11,312			12,957			10,147
	11,297			12,560			7,765
Deferred:
Federal	—			—			(1,506		)
State	24			(399		)	—
Foreign	(354		)	(198		)	(147		)
	(330		)	(597		)	(1,653		)
	$	10,967		$	11,963		$	6,112

The following is a reconciliation of the federal statutory income tax rate to the effective income tax rates reflected in the Consolidated Statements of Comprehensive Income for fiscal 2016, 2015 and 2014:



	2016		2015		2014
Federal statutory income tax rate	35.0	%	35.0	%	35.0	%
Increase (decrease) resulting from:
Permanent differences	1.6		1.3		1.8
Foreign tax rate differences	(36.3	)	(38.0	)	(33.2	)
Disregarded entity benefit	(1.8	)	(1.2	)	(1.8	)
Dividend repatriation	32.9		—		—
Valuation allowances	(18.7	)	16.5		8.4
Other, net	(0.1	)	(2.3	)	(3.7	)
Effective income tax rate	12.6	%	11.3	%	6.5	%

The Company recorded income tax expense of $11.0 million, $12.0 million and $6.1 million for fiscal 2016, 2015 and 2014, respectively.

The effective tax rate for fiscal 2016 was higher than the effective tax rate for fiscal 2015 primarily as a result of the overall decrease in income before taxes in jurisdictions where the Company does not pay taxes. The effective tax rate for fiscal 2015 is higher than that of fiscal 2014 primarily as a result of the geographic distribution of worldwide earnings and tax benefits recorded in fiscal 2014 due to the lapse of statute of limitations related to certain U.S. tax examinations.

During fiscal 2016, the Company repatriated $100.0 million of current year foreign earnings from the APAC region to the U.S., which had no income statement impact due to U.S. net operating losses, the use of U.S. tax credits and the reversal of the related valuation allowance. The repatriation does not impact the permanently reinvested assertions made by the Company regarding prior period foreign earnings as the remittance was distributed exclusively from current year foreign earnings. The Company does not have a history of repatriating foreign earnings by way of a taxable dividend and considers the fiscal 2016 remittance to be an isolated occurrence. The Company does not anticipate a similar repatriation in the foreseeable future.

During fiscal 2015, the Company recorded a $17.5 million addition to its valuation allowance relating to continuing losses in certain jurisdictions within the AMER and EMEA regions.

During fiscal 2014, the Company recorded a $7.9 million addition to its valuation allowance related to continuing losses in certain jurisdictions within the AMER and EMEA regions. During fiscal 2014, the Company also recorded tax benefits of $3.8 million primarily due to the lapse of statute of limitations related to certain U.S. tax examinations during the fiscal year.

The components of the net deferred income tax assets as of October 1, 2016 and October 3, 2015, were as follows (in thousands):



	2016			2015
Deferred income tax assets:
Loss/credit carryforwards	$	24,017		$	39,380
Inventories	7,527			7,799
Accrued benefits	25,493			25,180
Allowance for bad debts	461			321
Other	2,822			3,724
Total gross deferred income tax assets	60,320			76,404
Less valuation allowances	(41,002		)	(58,343		)
Deferred income tax assets	19,318			18,061
Deferred income tax liabilities:
Property, plant and equipment	14,400			13,320
Other	84			84
Deferred income tax liabilities	14,484			13,404
Net deferred income tax assets	$	4,834		$	4,657

During fiscal 2016, the Company’s valuation allowance decreased by $17.3 million. This decrease is primarily the result of the dividend remitted from current year foreign earnings discussed above.

As of October 1, 2016, the Company had approximately $148.0 million of pre-tax state net operating loss carryforwards that expire between fiscal 2017 and 2037. These state net operating losses have a full valuation allowance against them.

As a result of using the with-and-without method under the requirements for accounting for stock-based compensation, the Company has an unrecognized net operating loss carryforward of $4.9 million related to tax deductions in excess of compensation expense for stock options. This deduction will remain unrecognized until the related deductions result in a reduction to income taxes payable.

During fiscal 2016, tax legislation was adopted in various jurisdictions. None of these changes are expected to have a material impact on the Company's consolidated financial condition, results of operations or cash flows.

The Company has been granted a tax holiday for a foreign subsidiary in the APAC region. This tax holiday will expire on December 31, 2024, and is subject to certain conditions with which the Company expects to comply. The Company benefited from a second tax holiday within the APAC region, which under the terms of the Company's agreement with the local taxing authority expired on December 31, 2013. During fiscal 2016, 2015 and 2014, these tax holidays resulted in tax reductions of approximately $27.1 million ($0.81 per basic share), $29.9 million ($0.89 per basic share) and $24.1 million ($0.71 per basic share), respectively.

The Company does not provide for taxes that would be payable if undistributed earnings of foreign subsidiaries were remitted because the Company considers these earnings to be permanently reinvested. The aggregate undistributed earnings of the Company’s foreign subsidiaries for which a deferred income tax liability has not been recorded was approximately $836.6 million as of October 1, 2016. If such earnings were repatriated, additional tax expense may result, although the calculation of such additional taxes is not practicable at this time.

The Company has approximately $2.8 million of uncertain tax benefits as of October 1, 2016. The Company has classified these amounts in the Consolidated Balance Sheets as “Other liabilities” (noncurrent) in the amount of $0.6 million and an offset to “Deferred income taxes” (noncurrent asset) in the amount of $2.2 million. The Company has classified these amounts as “Other liabilities” (noncurrent) and “Deferred income taxes” (noncurrent asset) to the extent that payment is not anticipated within one year.

The following is a reconciliation of the beginning and ending amounts of unrecognized income tax benefits (in thousands):



	2016			2015			2014
Balance at beginning of fiscal year	$	2,353		$	2,368		$	7,436
Gross increases for tax positions of prior years	534			73			324
Gross increases for tax positions of the current year	—			—			—
Gross decreases for tax positions of prior years	(88		)	(88		)	(1,582		)
Lapse of applicable statute of limitations	—			—			(3,810		)
Settlements	—			—			—
Balance at end of fiscal year	$	2,799		$	2,353		$	2,368

The amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate is $0.6 million for each of the fiscal years ended October 1, 2016 and October 3, 2015.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. The total accrued penalties and net accrued interest with respect to income taxes was approximately $0.2 million for each of the fiscal years ended October 1, 2016, October 3, 2015 and September 27, 2014. The Company recognized $0.1 million of expense for accrued penalties and net accrued interest in the Consolidated Statements of Comprehensive Income for each of the fiscal years ended October 1, 2016, October 3, 2015 and September 27, 2014.

It is possible that a number of uncertain tax positions related to federal and state tax positions may be settled within the next 12 months. Settlement of these matters is not expected to have a material effect on the Company’s consolidated results of operations, financial position and cash flows. The Company is not currently under examination by taxing authorities in the U.S. or foreign jurisdictions in which the Company operates. The Company is not aware of any material proposed adjustment that has not been reflected in the current financial statements.

The Company files income tax returns, including returns for its subsidiaries, with federal, state, local and foreign taxing jurisdictions. The following tax years remain subject to examination by the respective major tax jurisdictions:



Jurisdiction		Fiscal Years
China		2011-2016
Germany		2011-2016
Mexico		2011-2016
Romania		2010-2016
United Kingdom		2013-2016
United States
Federal		2011, 2013-2016
State		2003-2016