Income Taxes

12 Months Ended

Dec. 28, 2019

For income tax purposes, the domestic and foreign components of income (loss) before taxes were as follows:



(In millions)	2019			2018			2017
Domestic	$	(44.9	)	$	(54.2	)	$	(76.2	)
Foreign	148.3			330.4			261.3
Total	$	103.4		$	276.2		$	185.1

The domestic and foreign components of income (loss) before taxes reflect adjustments as required under certain advanced pricing agreements and exclude repatriation of foreign earnings to the United States.

The provisions for current and deferred income taxes are summarized as follows:



(In millions)	2019			2018			2017
Current:
United States	$	6.8		$	13.2		$	25.6
International	71.7			80.8			136.9
State and local	0.9			(1.0		)	2.1
	79.4			93.0			164.6
Deferred:
United States	(7.9		)	26.1			312.9
International	18.4			1.7			(25.6		)
State and local	1.1			(0.5		)	(1.4		)
	11.6			27.3			285.9
Total	$	91.0		$	120.3		$	450.5

A reconciliation of the provision for income taxes and income taxes computed using the U.S. federal statutory rate were as follows:



(In millions)	2019			2018			2017
Amount computed using statutory rate	$	21.7		$	58.0		$	64.8
Increase (reduction) in taxes resulting from:
Foreign direct taxes in excess of credits	8.2			(10.1		)	(5.8		)
Foreign rate differential	30.4			(8.3		)	14.3
Foreign-derived intangible income, benefit	(1.7		)	—			—
GILTI, net of credits	9.8			10.9			—
Impact of changes in U.S. tax legislation	(22.2		)	39.6			375.0
Other changes in valuation allowances for deferred tax assets	45.6			36.2			5.3
Impact of equity based compensation	2.8			0.6			—
Foreign and domestic tax audit settlement and adjustments	—			—			(2.5		)
Other	(3.6		)	(6.6		)	(0.6		)
Total	$	91.0		$	120.3		$	450.5

The effective tax rates for 2019, 2018 and 2017 were 87.9 percent, 43.6 percent and 243.4 percent, respectively. In 2019, the effective tax rate (income taxes as a percentage of income from continuing operations before income taxes) was higher than the U.S. statutory rate due to continued negative impacts from the tax reform provisions such as GILTI inclusions, interest deduction limitations, a jurisdictional mix of offshore earnings in countries with statutory tax rates higher than the U.S. and certain valuation allowances that were booked against existing deferred tax assets in 2019. The effective tax rates for 2018 and 2017 are higher than the U.S. statutory rate which reflect the various impacts of the Tax Cuts and Jobs Act of 2017 (“the Tax Act”).

In accordance with U.S. GAAP, the Company made the accounting policy election to treat GILTI as a current period expense starting in fiscal year 2018. Therefore, the Company has not provided any deferred tax impacts of GILTI in the Consolidated Financial Statements. The Company recognized $16.9 million and $10.9 million of tax cost associated with GILTI ( before credits) for the years ended December 28, 2019 and December 29, 2018, respectively. The expense recorded in 2018 did not significantly change due to the U.S. Treasury issuance of final regulations.

The Company also completed a comprehensive analysis of the foreign-derived intangible income (“FDII”) based on additional guidance provided in the proposed regulations issued by the U.S. Treasury Department in 2018. FDII activity for the year ended December 28, 2019 resulted in a benefit of $1.7 million.

The components of deferred income tax assets (liabilities) were as follows:



(In millions)	2019			2018
Purchased intangibles	$	(9.1	)	$	(17.4	)
Lease Liabilities	(22.7		)	—
Other	(0.8		)	(1.6		)
Gross deferred tax liabilities	(32.6		)	(19.0		)
Credit and net operating loss carry forwards (net of unrecognized tax benefits)	296.3			314.2
Employee benefits accruals	45.5			45.5
Deferred costs	39.5			35.1
Fixed assets basis differences	19.9			18.6
Capitalized intangibles	21.7			19.1
Other accruals	56.6			62.0
Accounts receivable	14.5			1.3
Post-retirement benefits	3.3			3.4
Depreciation	5.5			9.4
Lease Assets	22.7			—
Inventory	5.6			4.7
Gross deferred tax assets	531.1			513.3
Valuation allowances	(315.6		)	(284.6		)
Net deferred tax assets	$	182.9		$	209.7

At December 28, 2019, the Company had gross federal, state, and international tax operating losses of $0 million, $10.8 million and $440.8 million, respectively. These tax loss carryforwards have expiration dates ranging between one year and no expiration in certain instances. The estimated gross foreign tax credit carryforwards for 2019 and 2018 are $189.5 million and $193.5 million, respectively. These credit carryforwards have expirations ranging from one to ten years.

At December 28, 2019 and December 29, 2018, the Company had valuation allowances against certain deferred tax assets, including the tax loss and credit carryforwards mentioned above, totaling $315.6 million and $284.6 million, respectively. The increase in valuation allowance was primarily associated with booking a full reserve against the foreign tax credits, the interest expense carryforwards created by the Tax Act, and net operating losses. These valuation allowances relate to tax assets in jurisdictions where it is management's best estimate that there is not a greater than 50 percent probability that the benefit of the assets will be realized in the associated tax returns.

As of December 28, 2019 the Company has approximately $2.0 billion of cumulative undistributed earnings of its non-U.S. subsidiaries. The Tax Act imposed a mandatory transition tax on accumulated foreign earnings and generally eliminated U.S. taxes on foreign subsidiary distribution with the exception of foreign withholding taxes and other foreign local tax. The Company generally does not provide for taxes related to our undistributed earnings because such earnings either would not be taxable when remitted or they are considered to be indefinitely reinvested. If in the foreseeable future, the Company can no longer demonstrate that these earnings are indefinitely reinvested, a deferred tax liability will be recognized. As of December 28, 2019, the Company has recorded a deferred tax liability of $8.8 million on $178.3 million of earnings it has deemed to not be permanently reinvested. A determination of the amount of the unrecognized deferred tax liability related to other undistributed earnings is not practicable due to the complexity and variety of assumptions necessary based on the manner in which the undistributed earnings would be repatriated.

As of December 28, 2019 and December 29, 2018, the Company's accrual for uncertain tax positions was $13.5 million and $15.1 million, respectively. The Company estimates that approximately $13.2 million of that amount, if recognized, would impact the effective tax rate. A reconciliation of the beginning and ending amount of accrual for uncertain tax positions is as follows:



(In millions)	2019			2018			2017
Balance, beginning of year	$	15.1		$	19.8		$	20.7
Additions based on tax positions related to the current year	1.1			2.2			3.6
Additions for tax positions of prior year	3.0			0.5			2.2
Reduction for tax positions of prior years	(2.4		)	(3.4		)	(3.0		)
Settlements	(3.0		)	—			(1.2		)
Reductions for lapse in statute of limitations	(0.3		)	(3.6		)	(3.7		)
Impact of foreign currency rate changes versus the U.S. dollar	—			(0.4		)	1.2
Balance, end of year	$	13.5		$	15.1		$	19.8

In evaluating uncertain tax positions, the Company makes determinations regarding the application of complex tax rules, regulations and practices. Uncertain tax positions are evaluated based on many factors including but not limited to changes in tax laws, new developments and the impact of tax audit settlements on future periods.

Interest and penalties related to uncertain tax positions in the Company's global operations are recorded as a component of the provision for income taxes. The Company had accrued $4.0 million for the potential payment of interest and penalties as of December 28, 2019 and $4.0 million of this total could favorably impact future tax rates. The Company had accrued $5.5 million for the potential payment of interest and penalties as of December 29, 2018 and $5.5 million of this total could favorably impact future tax rates if recognized and released.

The Company operates globally and files income tax returns in the United States with federal and various state agencies, and in foreign jurisdictions. The Company paid income taxes in 2019, 2018 and 2017 of $98.9 million, $124.5 million and $123.3 million, respectively. The Company has a foreign subsidiary which receives a tax holiday that expires in 2020. The net benefit of this and other previous tax holidays was $0.1 million, $0.3 million and $0.7 million in 2019, 2018 and 2017, respectively.

In the normal course of business, the Company is subject to examination by taxing authorities throughout the world. The Company is currently under examination or contesting proposed adjustments by various state and international tax authorities for fiscal years ranging from 2004 through 2018. It is reasonably possible that there could be a significant decrease or increase to the unrecognized tax benefit balance during the course of the next twelve months as these examinations continue, other tax examinations commence or various statutes of limitations expire. While the Company does not currently expect material changes, it is possible that the amount of unrecognized benefit with respect to the uncertain tax positions will significantly increase or decrease related to audits in various foreign jurisdictions that may conclude during that period or new developments that could also, in turn, impact the Company's assessment relative to the establishment of valuation allowances against certain existing deferred tax assets. An estimate of the range of possible changes cannot be made for remaining unrecognized tax benefits because of the significant number of jurisdictions in which the Company does business and the number of open tax periods.