Income Taxes

3 Months Ended

Mar. 29, 2019



5.	Income Taxes

The Company recognized an income tax benefit of $204.7 million on a loss from continuing operations before income taxes of $49.5 million for the three months ended March 29, 2019, and an income tax benefit of $36.6 million on a loss from continuing operations before income taxes of $57.5 million for the three months ended March 30, 2018. This resulted in effective tax rates of 413.5% and 63.7% for the three months ended March 29, 2019 and March 30, 2018, respectively. The income tax benefit for the three months ended March 29, 2019 is comprised of $38.5 million of current tax expense and $243.2 million of deferred tax benefit. The deferred tax benefit is predominantly related to previously acquired intangibles as well as the reorganization of the Company's intercompany financing and associated legal entity ownership which eliminated the interest bearing deferred tax obligation. The income tax benefit for the three months ended March 30, 2018 is comprised of $11.2 million of current tax expense and $47.8 million of deferred tax benefit. The deferred tax benefit is predominantly related to previously acquired intangibles.

The income tax benefit was $204.7 million for the three months ended March 29, 2019, compared with a tax benefit of $36.6 million for the three months ended March 30, 2018. The $168.1 million net increase in the tax benefit includes an increase of $192.8 million attributable to the tax benefit from the reorganization of the Company's intercompany financing and associated legal entity ownership which occurred during the three months ended March 29, 2019, partially offset by a decrease in tax benefit of $24.7 million predominately attributable to changes in the timing, amount and jurisdictional mix of operating income.

During the three months ended March 29, 2019, the Company completed a reorganization of its intercompany financing and associated legal entity ownership in response to the changing global tax environment. As a result, the Company recognized current income tax expense of $28.9 million and a deferred income tax benefit of $221.7 million with a corresponding reduction to net deferred tax liabilities. The reduction in net deferred tax liabilities is comprised of a decrease in interest-bearing deferred tax obligations which results in the elimination of the December 28, 2018 balance of $227.5 million, a $45.3 million increase to a deferred tax asset related to excess interest carryforwards, a $26.4 million increase in various other net deferred tax liabilities and a $24.7 million decrease to a deferred tax asset related to tax loss and credit carryforwards net of valuation allowances. The elimination of the interest-bearing deferred tax obligation also eliminates the annual Internal Revenue Code section 453A interest expense.

During the three months ended March 29, 2019, and the fiscal year ended December 28, 2018, the net cash payments for income taxes were $18.8 million and $12.4 million, respectively.

The Company's unrecognized tax benefits, excluding interest, totaled $452.6 million and $287.7 million as of March 29, 2019 and December 28, 2018, respectively. The net increase of $164.9 million primarily resulted from a net increase to current year tax positions of $150.3 million, net increases from prior period tax positions of $15.5 million, and a net decrease from settlements of $0.9 million. If favorably settled, $440.8 million of unrecognized tax benefits as of March 29, 2019 would benefit the effective tax rate, of which up to $20.0 million may be reported in discontinued operations. The total amount of accrued interest and penalties related to these obligations was $42.3 million and $37.1 million as of March 29, 2019 and December 28, 2018, respectively.

It is reasonably possible that within the next twelve months the unrecognized tax benefits could decrease by up to $106.2 million and the amount of related interest and penalties could decrease by up to $30.6 million as a result of the resolution of various U.K. and non-U.K. examinations, appeals and litigation and the expiration of various statutes of limitation.