INCOME TAXES

The Company's income tax expense was $64.2 million, $116.1 million and $100.5 million and the Company's effective income tax rate was 18.4%, 28.5% and 32.4% for the years ended November 26, 2017, November 27, 2016 and November 29, 2015, respectively.

Subsequent to November 26, 2017, the Tax Cuts and Jobs Act was enacted, and includes, among other items, a reduction in the federal corporate income tax rate from 35% to 21% and a deemed repatriation of foreign earnings. See Note 22 for more information.

The decrease in the effective tax rate in 2017 as compared to 2016 was primarily due to additional net foreign tax credits from repatriations from foreign operations as compared to 2016 and release of valuation allowances on deferred tax assets of foreign subsidiaries, primarily Japan. The decrease in effective income tax rate in 2016 as compared to 2015 is primarily due to a favorable impact of foreign operations as compared to 2015.

The Company's income tax expense differed from the amount computed by applying the U.S. federal statutory income tax rate of 35% to income before income taxes as follows:



	Year Ended
	November 26, 2017					November 27, 2016					November 29, 2015
	(Dollars in thousands)
Income tax expense at U.S. federal statutory rate	$	122,073		35.0	%	$	142,541		35.0	%	$	108,639		35.0	%
State income taxes, net of U.S. federal impact	7,598			2.2	%	6,943			1.7	%	8,938			2.9	%
Change in valuation allowance	(9,624		)	(2.8	)%	—			—		—			—
Impact of foreign operations	(50,650		)	(14.5	)%	(28,727		)	(7.1	)%	(7,286		)	(2.3	)%
Reassessment of tax liabilities	(5,553		)	(1.6	)%	(2,387		)	(0.6	)%	(7,577		)	(2.4	)%
Deduction related to subsidiaries	—			—		(6,788		)	(1.7	)%	(8,060		)	(2.6	)%
Other, including non-deductible expenses	381			0.1	%	4,469			1.2	%	5,853			1.8	%
Total	$	64,225		18.4	%	$	116,051		28.5	%	$	100,507		32.4	%

Impact of foreign operations. The tax rate benefit is due to $32.0 million impact resulting from favorable mix of earnings in jurisdictions with lower effective tax rates and $18.6 million from repatriation of foreign earnings in 2017. The tax rate benefit in 2016 is primarily due to favorable mix of earnings in jurisdictions with lower effective tax rates and a lower amount of foreign losses with no tax benefit in 2016 as compared to 2015.

Release of Valuation Allowance. The $9.6 million tax benefit in 2017 is primarily due to the release of valuation allowances on deferred tax assets of certain foreign subsidiaries, primarily in Japan where management concluded that it is more likely than not that such assets will be realized.

Reassessment of tax liabilities. The $5.6 million tax benefit is primarily attributable to the remeasurement of a tax position and the lapse of statutes of limitations in various jurisdictions in 2017. The $2.4 million tax benefit is primarily attributable to the lapse of statutes of limitations in various jurisdictions in 2016.

Deduction related to subsidiaries. In 2016, the $6.8 million benefit is primarily related to a discrete tax benefit attributable to deductions for worthless debts in a consolidated subsidiary.

The U.S. and foreign components of income before income taxes were as follows:



	Year Ended
	November 26, 2017		November 27, 2016		November 29, 2015
	(Dollars in thousands)
Domestic	$	67,407	$	189,478	$	194,540
Foreign	281,374		217,782		115,858
Total income before income taxes	$	348,781	$	407,260	$	310,398

Income tax expense consisted of the following:



	Year Ended
	November 26, 2017			November 27, 2016			November 29, 2015
	(Dollars in thousands)
U.S. Federal
Current	$	7,936		$	7,122		$	3,299
Deferred	1,240			66,840			56,155
	$	9,176		$	73,962		$	59,454
U.S. State
Current	$	3,441		$	2,097		$	1,334
Deferred	4,157			4,846			7,604
	$	7,598		$	6,943		$	8,938
Foreign
Current	$	53,334		$	40,754		$	37,488
Deferred	(5,883		)	(5,608		)	(5,373		)
	$	47,451		$	35,146		$	32,115
Consolidated
Current	$	64,711		$	49,973		$	42,121
Deferred	(486		)	66,078			58,386
Total income tax expense	$	64,225		$	116,051		$	100,507

Deferred Tax Assets and Liabilities

The Company's deferred tax assets and deferred tax liabilities were as follows:



	November 26, 2017			November 27, 2016
	(Dollars in thousands)
Deferred tax assets
Foreign tax credit carryforwards	$	123,593		$	92,845
State net operating loss carryforwards	8,302			8,721
Foreign net operating loss carryforwards	59,157			85,095
Employee compensation and benefit plans	214,798			247,235
Advance royalties	46,757			58,633
Accrued liabilities	29,169			28,680
Sales returns and allowances	39,030			29,338
Inventory	19,553			14,272
Property, plant and equipment	8,826			6,971
Unrealized foreign exchange gains or losses	23,058			—
Other	1,069			14,472
Total gross deferred tax assets	573,312			586,262
Less: Valuation allowance	(38,692		)	(68,212		)
Deferred tax assets, net of valuation allowance	534,620			518,050
Total net deferred tax assets	$	534,620		$	518,050

Foreign tax credit carryforwards. The foreign tax credit carryforwards at November 26, 2017, are subject to expiration through 2023 if not utilized.

Foreign net operating loss carryforwards. As of November 26, 2017, the Company had a deferred tax asset of $59.2 million for foreign net operating loss carryforwards of $213.7 million. Approximately $111.9 million of these operating losses are subject to expiration through 2026. The remaining $101.8 million are available as indefinite carryforwards under applicable tax law.

Valuation Allowance. The following table details the changes in valuation allowance during the year ended November 26, 2017:



	Valuation Allowance at November 27, 2016		Changes in Related Gross Deferred Tax Asset			Change / (Release)			Valuation Allowance at November 26, 2017
	(Dollars in thousands)
U.S. state net operating loss carryforwards	$	1,720	$	(200	)	$	—		$	1,520
Foreign net operating loss carryforwards and other foreign deferred tax assets	66,492		(10,019		)	(19,301		)	37,172
	$	68,212	$	(10,219	)	$	(19,301	)	$	38,692

At November 26, 2017, the Company's valuation allowance primarily related to its gross deferred tax assets for state and foreign net operating loss carryforwards, which reduced such assets to the amount that will more likely than not be realized. The $19.3 million release during 2017 was attributable to the release of valuation allowances on deferred tax assets, primarily in Japan and Sweden.

Unremitted earnings of certain foreign subsidiaries. For the year ended November 26, 2017, management asserted indefinite reinvestment on $264 million of undistributed foreign earnings, as management determined that this amount is required to meet ongoing working capital needs in certain foreign subsidiaries; no U.S. income taxes have been provided for such earnings. This is an increase versus the prior year which reflects management's broader approach considering the realignment of the foreign subsidiary ownership structure. If the Company were to repatriate such foreign earnings to the United States, the deferred tax liability associated with such earnings would have been approximately $70 million.

Uncertain Income Tax Positions

As of November 26, 2017, the Company’s total gross amount of unrecognized tax benefits was $33.8 million, of which $28.1 million could impact the effective tax rate, if recognized, as compared to November 27, 2016, when the Company’s total gross amount of unrecognized tax benefits was $29.1 million, of which $21.7 million could have impacted the effective tax rate, if recognized.

The following table reflects the changes to the Company's unrecognized tax benefits for the year ended November 26, 2017 and November 27, 2016:



	November 26, 2017			November 27, 2016
	(Dollars in thousands)
Unrecognized tax benefits beginning balance	$	29,053		$	32,704
Increases related to current year tax positions	4,779			1,970
Increases related to tax positions from prior years	5,625			45
Decreases related to tax positions from prior years	(4,050		)	(584		)
Settlement with tax authorities	—			—
Lapses of statutes of limitation	(1,956		)	(4,266		)
Other, including foreign currency translation	335			(816		)
Unrecognized tax benefits ending balance	$	33,786		$	29,053

The Company believes that it is reasonably possible that unrecognized tax benefits could decrease within the next twelve months by as much as $2.4 million due to the lapse of statutes of limitations.

As of November 26, 2017, and November 27, 2016, accrued interest and penalties primarily relating to non-U.S. jurisdictions were $2.5 million and $4.1 million, respectively.

The Company files income tax returns in the United States and in various foreign (including Belgium, Hong Kong and Mexico), state and local jurisdictions. With few exceptions, examinations have been completed by tax authorities or the statute of limitations has expired for United States federal, foreign, state and local income tax returns filed by the Company for years through 2008.