Income Taxes

12 Months Ended

Dec. 27, 2019

The provision for income taxes consisted of the following (U.S. dollars in millions):



	Year ended
	December 27, 2019		December 28, 2018			December 29, 2017
Current:
U.S. federal income tax	$	2.1	$	(0.4	)	$	8.4
State	1.9		0.1			1.5
Non-U.S.	12.2		12.8			13.4
	16.2		12.5			23.3
Deferred:
U.S. federal income tax	3.0		2.1			2.1
State	1.1		1.3			0.5
Non-U.S.	1.1		0.2			(1.0		)
	5.2		3.6			1.6
	$	21.4	$	16.1		$	24.9

Income (loss) before income taxes consisted of the following (U.S. dollars in millions):



	Year ended
	December 27, 2019		December 28, 2018			December 29, 2017
U.S.	$	32.0	$	11.9		$	31.1
Non-U.S.	58.7		(11.7		)	113.0
	$	90.7	$	0.2		$	144.1

9. Income Taxes (continued)

The differences between the reported provision for income taxes and income taxes computed at the U.S. statutory federal income tax rate are explained in the following reconciliation (U.S. dollars in millions):



	Year ended
	December 27, 2019			December 28, 2018			December 29, 2017
Income tax provision (benefit) computed at the U.S. statutory federal rate	$	19.1		$	—		$	50.4
Effect of tax rates on non-U.S. operations	(47.4		)	(33.2		)	(67.4		)
Provision for uncertain tax positions	0.8			—			0.7
Non-deductible interest	1.9			2.3			2.4
Foreign exchange	(3.7		)	(11.5		)	2.3
Non-deductible intercompany charges	0.1			(0.1		)	—
Non-deductible differences	1.8			0.6			6.0
Non-taxable income/loss	(2.5		)	(1.5		)	0.3
Non-deductible impairment charges	0.4			3.6			—
Adjustment to deferred balances	—			0.4			0.1
Other	2.4			2.2			(0.9		)
Other taxes in lieu of income	2.9			2.4			1.8
Change in deferred rate	7.4			(1.3		)	11.7
Increase (decrease) in valuation allowance ⁽¹⁾	38.2			52.2			17.5
Provision for income taxes	$	21.4		$	16.1		$	24.9

_____________

⁽¹⁾ The increase in valuation allowance includes effects of foreign exchange and adjustments to deferred tax balances which were fully offset by valuation allowance.

9. Income Taxes (continued)

Deferred income tax assets and liabilities consisted of the following (U.S. dollars in millions):



		December 27,			December 28,
Deferred tax liabilities:		2019			2018
	Allowances and other accrued liabilities	$	(1.5	)	$	—
	Inventories	(16.3		)	(13.7		)
	Property, plant and equipment	(70.6		)	(70.2		)
	Equity in earnings of unconsolidated companies	(0.1		)	(0.1		)
	Pension obligations	(3.1		)	(2.5		)
	Other noncurrent deferred tax liabilities	(12.3		)	(6.5		)
	ROU Assets	$	(25.6	)	$	—
Total noncurrent deferred tax liabilities		$	(129.5	)	$	(93.0	)

Deferred tax assets:
	Allowances and other accrued assets	$	13.5		$	10.6
	Inventories	5.5			5.6
	Pension obligations	27.7			24.8
	Property, plant and equipment	2.1			2.3
	Post-retirement benefits other than pension	1.0			1.0
	Net operating loss carryforwards	318.0			287.1
	Capital loss carryover	1.5			1.6
	Other noncurrent assets	28.5			26.9
	Operating Lease	25.8			—
	Total noncurrent deferred tax assets	423.6			359.9
	Valuation allowance	(323.3		)	(291.8		)

Total deferred tax assets, net		$	100.3		$	68.1

Net deferred tax liabilities		$	(29.2	)	$	(24.9	)

The valuation allowance increased by $31.6 million in 2019 and by $34.7 million in 2018. The increase in 2019 and 2018 relates primarily to valuation allowance on additional net operating loss carryforwards offset by the effect of a change in judgment about our ability to realize deferred tax assets in future years, due to our current and foreseeable operations.

At December 27, 2019, the valuation allowance includes $1.0 million for which subsequently recognized tax benefits will be recognized directly in contributed capital.

At December 27, 2019, undistributed earnings of our foreign subsidiaries amounted to $1,550.1 million. Those earnings are considered to be either indefinitely reinvested, or the earnings could be distributed tax free. Accordingly, no taxes have been provided thereon. To the extent the earnings are considered indefinitely reinvested, determination of the amount of unrecognized deferred tax liability is not practicable due to the complexities associated with its hypothetical calculation.

9. Income Taxes (continued)

At December 27, 2019, we had approximately $1,200.6 million of federal and foreign tax operating loss carryforwards expiring as follows (U.S. dollars in millions):



Expires:
2020	$	19.5
2021	21.5
2022	25.3
2023	8.5
2024 and beyond	18.4
No expiration	1,107.4
	$	1,200.6

A reconciliation of the beginning and ending amount of uncertain tax positions excluding interest and penalties is as follows (U.S. dollars in millions):



	December 27, 2019			December 28, 2018			December 29, 2017
Beginning balance	$	2.9		$	3.2		$	3.2
Gross decreases - tax position in prior period	—			—			—
Gross increases - current-period tax positions	0.7			0.1			0.1
Settlements	(0.1		)	—			—
Lapse of statute of limitations	—			(0.3		)	(0.1		)
Foreign exchange	—			(0.1		)	—
Ending balance	$	3.5		$	2.9		$	3.2

We had accrued $5.0 million in 2019 and $4.2 million in 2018, for uncertain tax positions, including interest and penalties that, if recognized would affect the effective income tax rate.

The tax years 2012-2019 remain subject to examination by taxing authorities throughout the world in major jurisdictions, such as Costa Rica, Luxembourg, Switzerland and the United States.

We classify interest and penalties on uncertain tax positions as a component of income tax expense in the Consolidated Statements of Operations. Accrued interest and penalties related to uncertain tax positions are $1.4 million and $1.3 million for December 27, 2019 and December 28, 2018, respectively and are included in other noncurrent liabilities.

In connection with a current examination of the tax returns in two foreign jurisdictions, the taxing authorities have issued income tax deficiencies related to transfer pricing of approximately $157.9 million (including interest and penalties) for tax years 2012 through 2016. We strongly disagree with the proposed adjustments and have filed a protest with each of the taxing authorities as we believe that the proposed adjustments are without technical merit. We will continue to vigorously contest the adjustments and expect to exhaust all administrative and judicial remedies necessary to resolve the matters, which could be a lengthy process. We regularly assesses the likelihood of adverse outcomes resulting from examinations such as these to determine the adequacy of our tax reserves. Accordingly, we have not accrued any additional amounts based upon the proposed adjustments. There can be no assurance that these matters will be resolved in our favor, and an adverse outcome of either matter, or any future tax examinations involving similar assertions, could have a material effect on our financial condition, results of operations and cash flows.