H.	Income Taxes

December 22, 2017,

the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law in the United States. The Tax Act, among other provisions, introduces changes in the U.S. corporate tax rate, business related exclusions and deductions and credits, and has tax consequences for companies that operate internationally. Most of the changes introduced in the Tax Act are effective beginning on

January 1, 2018;

however, as the Company

has a fiscal year end of

June 30,

the effective dates for the Company are various and different.

For the

two

quarters ended

December 29, 2017

and

December 30, 2016,

the Company’s effective income tax rate was

204.0%

and

28.8%,

respectively. During the current fiscal quarter, in compliance with the new Tax Act, the Company recorded a tax expense of

$4,565,

primarily due to a remeasurement of deferred tax assets and liabilities; this increased the effective tax rate by

735.1%.

The Company has determined that the impact of the U.S. federal corporate income tax rate change on the U.S. deferred tax assets and liabilities is provisional because the number cannot be calculated until the actual timing differences are known at year end rather than estimated this quarter. The

first

quarter release of a valuation allowance in a certain foreign jurisdiction of

$3,803

reduced the effective tax rate by

612.4%.

The mix of earnings by jurisdiction and continued operational improvement coupled with increased tax preference items resulted in a minimal impact to the overall effective tax rate.

Within the calculation of

the Company’s annual effective tax rate the Company has used assumptions and estimates that

may

change as a result of future guidance, interpretation, and rule-making from the Internal Revenue Service, the SEC, and the FASB and/or various other taxing jurisdictions. For example, the Company anticipates that the state jurisdictions will continue to determine and announce their conformity to the Tax Act which could have an impact on the annual effective tax rate.

The following table sets forth the tax expense and the effective tax rate for

the Company’s earnings before income taxes:

	For the Two Quarters Ended
	December 29, 2017			December 30, 2016
Income (loss) before income taxes	$	621		$	(7,816	)
Income tax expense (benefit)		1,267			(2,253	)
Effective tax rate		204.0	%		28.8	%

The permanent reduction to the U.S. federal corporate income tax rate from

35%

21%

is effective

January 1, 2018 (

the “Effective Date”).

When a U.S. federal tax rate change occurs during a fiscal year, taxpayers are required to compute a weighted daily average rate for the fiscal year of enactment. As a result of the Tax Act, the Company has calculated a U.S. federal statutory corporate income tax rate of

27.6%

for the fiscal year ending

June 30, 2018

and applied this rate in computing the

first

half of fiscal year

2018

income tax provision. The U.S. federal statutory corporate income tax rate of

27.6%

is the weighted daily average rate between the pre-enactment U.S. federal statutory tax rate of

34%

applicable to the Company’s

2018

fiscal year prior to the Effective Date and the post-enactment U.S. federal statutory tax rate of

21%

applicable to the

2018

fiscal year thereafter. The Company expects the U.S. federal statutory rate to be

21%

for fiscal years beginning after

June 30, 2018.

The Company completed a provisional calculation to determine the impact of

one

-time repatriation tax on deferred foreign income (“Transition Tax”), as required by the Tax Act. The Company determined that the calculation is provisional because various components of the computation are unknown as of

December 29, 2017,

including the following significant items: exchange rates for fiscal year

2018,

the actual aggregate foreign cash position and the earnings and profits of the foreign entities as of the

two

measurement dates. This provisional calculation resulted in a

zero

tax liability, therefore

tax accrual was necessary. The Company has

not

provided for additional U.S. income taxes on cumulative earnings of consolidated foreign subsidiaries. With the enactment of the Transition Tax, any future dividends repatriated would benefit from the

100%

Dividends Received Deduction. The company reaffirms its position that the earnings of certain foreign subsidiaries remain permanently reinvested. An analysis was also completed to verify the future utilization of tax attributes and it was determined that full utilization would be realized and

valuation allowance was required.

The Company continues to review the anticipated impacts of the global intangible low taxed income (“GILTI”), a deduction for foreign-derived intangible income ("FDII") and base erosion anti-abuse tax (“BEAT”) on the Company, which are

not

effective until fiscal

2019.

The Company has

not

recorded any impact associated with GILTI, FDII or BEAT in the tax rate for the

first

half of fiscal

2018.

A provisional analysis of the new BEAT rules has been completed and it is

not

anticipated that the Company will meet the minimum thresholds, nor is it anticipated that it will for the foreseeable future and is therefore

not

subject to this tax. Initial provisional estimates of the impact of GILTI and FDII have also been completed and minimal impact is anticipated. These estimates

may

be impacted by actual future data, additional guidance or other unforeseen circumstances.

December 22, 2017,

the SEC issued Staff Accounting Bulletin

118

(“SAB

118”

SAB

118

expresses views of the SEC regarding ASC Topic

740,

Income Taxes (“ASC

740”

) in the reporting period that includes the enactment date of the Tax Act. The SEC staff issuing SAB

118

(the “Staff”) recognized that a registrant’s review of certain income tax effects of the Tax Act

may

be incomplete at the time financial statements are issued for the reporting period that includes the enactment date, including interim periods therein. The Staff’s view of the enactment of the Tax Act has been developed considering the principles of ASC Topic

805,

Business Combinations

, which addresses the accounting for certain items in a business combination for which the accounting is incomplete upon issuance of the financial statements that include the reporting period in which the business combination occurs. Specifically, the Staff provides that the accounting guidance in ASC Topic

805

may

be analogized to the accounting for impacts of the Tax Act. If a company does

not

have the necessary information available, prepared or analyzed for certain income tax effects of the Tax Act, SAB

118

allows a company to report provisional numbers and adjust those amounts during the measurement period

not

to extend beyond

one

year. For the

two

quarters ended

December 29, 2017,

the Company has recorded all known and estimable impacts of the Tax Act that are effective for fiscal year

2018.

Future adjustments to the provisional numbers will be recorded as discrete adjustments to income tax expense in the period in which those adjustments become estimable and/or are finalized.

Accordingly, the Company

’s income tax provision as of

December 29, 2017

reflects (i) the current year impacts of the Tax Act on the estimated annual effective tax rate and (ii) the following discrete items resulting directly from the enactment of the Tax Act based on the information available, prepared, or analyzed (including computations) in reasonable detail.

	For the Two Quarters Ended
	December 29, 2017
Transition Tax (provisional)	$	-
Net impact on U.S. deferred tax assets and liabilities (provisional)		(4,565	)
Net discrete impacts of the enactment of the Tax Act	$	(4,565	)

The Company maintains valuation allowances when it is more likely than

not

that all or a portion of a deferred tax asset will

not

be realized.

Changes in valuation allowances from period to period are included in the tax provision in the period of change. In determining whether a valuation allowance is required, the Company takes into account such factors as prior earnings history, expected future earnings, carry-back and carry-forward periods, and tax strategies that could potentially enhance the likelihood of realization of a deferred tax asset. Due to operational changes, the Company has evaluated the realizability of the net deferred tax assets related to a certain foreign jurisdiction. Based on this evaluation, along with expected future earnings, management has concluded that the valuation allowance is

longer appropriate and it was released during the

first

quarter of fiscal

2018.

Accounting policies for interim reporting require the Company to adjust its effective tax rate each quarter to be consistent with the estimated annual effective tax rate. Under this effective tax rate methodology, the Company applies an estimated annual income tax rate to its year-to-date ordinary earnings to derive its income tax provision each quarter.

The Company has approximately $

856

of unrecognized tax benefits, including related interest and penalties, as of

December 29, 2017

which, if recognized, would favorably impact the effective tax rate. There was

significant change in the total unrecognized tax benefits due to the settlement of audits, the expiration of statutes of limitations or for other items during the quarter ended

December 29, 2017.

It appears possible that the amount of unrecognized tax benefits could change in the next

twelve

months due to on-going audit activity.

Annually, the Company files income tax returns in various taxing jurisdictions inside and outside the United States.

In general, the tax years that remain subject to examination are

2011

through

2017

for the major operations in Italy, Canada, Belgium, and Japan. The tax years open to examination in the U.S. are for years subsequent to fiscal

2015.

The state of Wisconsin income tax audit remains ongoing for the fiscal years

2010

through

2013.

During the quarter the company finalized a US Federal Income tax audit for the fiscal year

2015

with

adjustment. It is reasonably possible that other audit cycles will be completed during fiscal

2018.