Income Taxes

The Company’s effective tax rate for the six months ended June 30, 2017 and July 1, 2016 was (82.8)% and 36.3%, respectively. The negative effective tax rate for the six months ended June 30, 2017 was primarily the result of incurring significant non-tax deductible losses as well as recording tax only charges for the period. The most significant items unfavorably impacting the effective tax rate for the six months ended June 30, 2017 were as follows:


•	Recognizing no tax benefit on $18.5 million of operational losses in jurisdictions where valuation allowances are recorded against net deferred tax assets,


•	Recognizing no tax benefit on $36.5 million of losses resulting from the sale of our Algerian business and related reclassification of foreign currency translation adjustments,


•	Recognizing no tax benefit on $4.2 million of foreign exchange related losses associated with the liquidation of our Australian business,


•	Recording a $5.7 million valuation allowance against net deferred tax assets in New Zealand due to the expected liquidation of the legal entities in New Zealand, and


•	Recording $9.8 million of income tax expense associated with changes in judgment concerning uncertain tax positions related to the FCPA settlement.

These unfavorable effective tax rate drivers significantly contributed to the recording of $25.5 million of income tax expense on the $30.8 million pre-tax loss for the six months ended June 30, 2017.

The effective tax rate for the six months ended July 1, 2016 was favorably impacted by the use of U.S. capital losses for which no tax benefit was previously recognized. This resulted in the recognition of only $3.2 million of income tax expense on $53.2 million of pre-tax gain associated with the sale of the North American Automotive Ignition Wire business. This favorable factor was partially offset by recognizing no tax benefit on $23.6 million of operational losses and $8.4 million of loss recorded on the sale of our Egyptian business. These losses were incurred in jurisdictions where valuation allowances are recorded against net deferred tax assets.

The Company’s effective tax rate for the three months ended June 30, 2017 and July 1, 2016 was (38.8)% and 28.2%, respectively. The negative effective tax rate for the three months ended June 30, 2017 was primarily the result of incurring significant non-tax deductible losses as well as recording tax only charges in the second quarter. The most significant items unfavorably impacting the effective tax rate for the three months ended June 30, 2017 were as follows:


•	Recognizing no tax benefit on $12.3 million of operational losses in jurisdictions where valuation allowances are recorded against net deferred tax assets,


•	Recognizing no tax benefit on $36.5 million of losses resulting from the sale of our Algerian business and related reclassification of foreign currency translation adjustments,


•	Recognizing no tax benefit on $4.2 million of foreign exchange related losses associated with the liquidation of our Australian business,


•	Recording a $5.7 million valuation allowance against net deferred tax assets in New Zealand due to the expected liquidation of the legal entities in New Zealand, and


•	Recording $9.8 million of income tax expense associated with changes in judgment concerning uncertain tax positions related to the FCPA settlement.

These unfavorable effective tax rate drivers significantly contributed to the recording of $19.2 million of income tax expense on the $49.5 million pre-tax loss for the three months ended June 30, 2017.

The effective tax rate for the three months ended July 1, 2016 was favorably impacted by the recognition of only $3.2 million of income tax expense on $53.2 million of pre-tax gain associated with the sale of the North American Automotive Ignition Wire business due to the use of U.S. capital losses for which no tax benefit was previously recognized. This favorable factor was partially offset by recognizing no tax benefit on $10.5 million of operational losses and $8.4 million of loss recorded on the sale of our Egyptian business. These losses were incurred in jurisdictions where valuation allowances are recorded against net deferred tax assets.

During the second quarter of 2017, the Company accrued approximately $0.2 million of income tax expense for uncertain tax positions likely to be taken in the current year and for interest and penalties on tax positions taken in prior periods, all of which would have a favorable impact on the effective tax rate, if recognized. In addition, $9.2 million of net income tax expense was recorded associated with increases in reserves due to changes in judgment concerning prior year uncertain tax positions, partially offset by decreases in reserves due to statute of limitation expirations on various other prior year uncertain tax positions.

The Company files income tax returns in numerous tax jurisdictions around the world. Due to uncertainties regarding the timing and outcome of various tax audits, appeals and settlements, it is difficult to reliably estimate the amount of unrecognized tax benefits that could change within the next twelve months. The Company believes it is reasonably possible that approximately $3 million of unrecognized tax benefits could change within the next twelve months due to the resolution of tax audits and statute of limitations expiration.

The Internal Revenue Service (“IRS”) proposed cumulative taxable income adjustments of approximately $50 million for the 2012-2013 tax years in February 2016. The proposed adjustments related to the Original Issue Discount (“OID”) yield claimed on the Company’s $429.5 million Subordinated Convertible Notes (“Notes”). The Company believed that the amount of the OID deductions claimed on its federal income tax returns since the 2009 issuance of the Notes was proper and appealed the IRS audit adjustment. In March 2017, the IRS Appeals Office ruled in favor of the Company and the audit was closed with no adjustment to reported income or tax. The IRS is currently in the process of auditing the Company’s 2015 federal tax return. With limited exceptions, tax years prior to 2012 are no longer open in major foreign, state, or local tax jurisdictions.