Note 6 Income Tax

9 Months Ended

Jul. 02, 2016

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

Income Tax

The Company estimates its annual effective income tax rate at the end of each quarterly period. The estimate takes into account the geographic mix of expected pre-tax income (loss), expected total annual pre-tax income (loss), enacted changes in tax laws, implementation of tax planning strategies and possible outcomes of audits and other uncertain tax positions. To the extent there are fluctuations in any of these variables during a period, the provision for income taxes may vary.

The provision for income taxes for the third quarter of 2016 and 2015 was $20.0 million (40.3% of income before taxes) and $15.8 million (39.3% of income before taxes), respectively, and $66.0 million (43.1% of income before taxes) and $67.6 million (52.2% of income before taxes) for the nine months ended July 2, 2016 and June 27, 2015, respectively. Although pre-tax income was higher for the nine months ended July 2, 2016, income tax expense was lower for that period primarily as a result of an unfavorable resolution of a foreign tax audit during the second quarter of 2015 as discussed below.

In 2014, a foreign tax authority completed its audit of the Company’s 2006 tax return and issued an assessment challenging certain of the Company’s tax positions. Although the Company disagreed with the assessment and vigorously contested it through the appropriate administrative procedures, the Company made a significant payment to the foreign tax authority during the quarter ended March 28, 2015 to resolve all issues related to this audit. This payment increased income tax expense by a net amount of $15.5 million in the second quarter of 2015, which represents the amount by which the amount paid exceeded the Company's reserve for this uncertain tax position. This audit was formally closed in the first quarter of 2016, with no adjustment to the Company's income tax reserves or additional payment required.

In each of the past four years, the Company has released a portion of its valuation allowance attributable to certain deferred tax assets in the U.S. and foreign jurisdictions. These releases have ranged from $21.5 million to $287.4 million. As of October 3, 2015, the Company had a valuation allowance of $282.7 million. To the extent the Company continues to consistently earn, as well as reliably project, income in the appropriate jurisdictions, it is reasonably possible that the valuation allowance will be further reduced at such time when such positive evidence can be substantiated. Continued strong and predictable earnings may be sufficient to warrant an additional release of the valuation allowance in 2016, although such positive evidence would need to be weighed against any negative evidence existing at that time. However, there can be no assurance that any additional portion of the valuation allowance will be released.

In November 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (ASU) 2015-17, "Balance Sheet Classification of Deferred Taxes". This ASU requires deferred tax assets and liabilities to be classified as noncurrent in a classified statement of financial position. The new guidance is effective for the Company in fiscal 2018. In order to simplify the presentation of deferred taxes, the Company elected to early adopt ASU 2015-17 as of the beginning of 2016 and to apply the new standard retrospectively. The condensed consolidated balance sheet as of October 3, 2015 was adjusted accordingly, resulting in a reclassification of $74.9 million of deferred tax assets from Prepaid expenses and other current assets to Deferred tax assets (noncurrent).