Income Taxes

6 Months Ended

Jun. 28, 2019



5.	Income Taxes

The Company recognized an income tax benefit of $24.3 million on a loss from continuing operations before income taxes of $24.8 million for the three months ended June 28, 2019, and an income tax benefit of $44.4 million on a loss from continuing operations before income taxes of $41.2 million for the three months ended June 29, 2018. This resulted in effective tax rates of 98.0% and 107.8% for the three months ended June 28, 2019 and June 29, 2018, respectively. The income tax benefit for the three months ended June 28, 2019 was comprised of $5.6 million of current tax expense and $29.9 million of deferred tax benefit, which was predominately related to previously acquired intangibles, the generation of tax loss and credit carryforwards net of valuation allowances and the non-restructuring impairment charge, as further discussed in Note 10. The income tax benefit for the three months ended June 29, 2018 was comprised of $10.2 million of current tax expense and $54.6 million of deferred tax benefit. The deferred tax benefit was predominantly related to previously acquired intangibles.

The Company recognized an income tax benefit of $229.0 million on a loss from continuing operations before income taxes of $74.3 million for the six months ended June 28, 2019, and an income tax benefit of $81.0 million on a loss from continuing operations before income taxes of $98.7 million for the six months ended June 29, 2018. This resulted in effective tax rates of 308.2% and 82.1% for the six months ended June 28, 2019 and June 29, 2018, respectively. The income tax benefit for the six months ended June 28, 2019 was comprised of $44.1 million of current tax expense and $273.1 million of deferred tax benefit. The deferred tax benefit was predominantly related to previously acquired intangibles, the generation of tax loss and credit carryforwards net of valuation allowances, the non-restructuring impairment charge, 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 six months ended June 29, 2018 was comprised of $21.4 million of current tax expense and $102.4 million of deferred tax benefit. The deferred tax benefit was predominantly related to previously acquired intangibles.

The income tax benefit was $24.3 million for the three months ended June 28, 2019, compared with a tax benefit of $44.4 million for the three months ended June 29, 2018. The $20.1 million net decrease in the tax benefit included a $20.7 million decrease attributed to changes in the timing, amount and jurisdictional mix of income, a $7.1 million decrease attributed to the gain on debt repurchased and a $3.4 million decrease attributed to restructuring and related charges, partially offset by an increase in tax benefit of $8.5 million attributed to the non-restructuring impairment charge and $2.6 million increase attributed to separation costs.

The income tax benefit was $229.0 million for the six months ended June 28, 2019, compared with a tax benefit of $81.0 million for the six months ended June 29, 2018. The $148.0 million net increase in the tax benefit included an increase of $189.8 million attributed to the tax benefit from the reorganization of the Company's intercompany financing and associated legal entity ownership, a $8.5 million increase attributed to the non-restructuring impairment charge and a $3.6 million increase attributed to separation costs, partially offset by a decrease in tax benefit of $35.2 million predominately attributed to changes in the timing, amount and jurisdictional mix of income, a $9.8 million decrease attributed to restructuring and related charges and a $8.9 million decrease attributed to the gain on debt repurchased.

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, during the six months ended June 28, 2019, the Company recognized current income tax expense of $28.9 million and a deferred income tax benefit of $218.7 million with a corresponding reduction to net deferred tax liabilities. The reduction in net deferred tax liabilities was comprised of a decrease in interest-bearing deferred tax obligations which resulted in the elimination of the December 28, 2018 balance of $227.5 million, a $42.3 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 eliminated the annual Internal Revenue Code section 453A interest expense.

During the six months ended June 28, 2019, and the fiscal year ended December 28, 2018, the net cash payments for income taxes were $21.5 million and $12.4 million, respectively. During the three months ended June 28, 2019, the Company filed its U.S. Federal income tax return for the period ended September 28, 2018 reporting a U.S. Federal net operating loss carryforward expiring in fiscal 2038. As of June 28, 2019, the Company’s U.S. Federal net operating loss carryforward was $815.4 million ($171.2 million measured at applicable statutory tax rates and net of uncertain tax positions).

The Company's unrecognized tax benefits, excluding interest, totaled $448.9 million and $287.7 million as of June 28, 2019 and December 28, 2018, respectively. The net increase of $161.2 million primarily resulted from a net increase to current year tax positions of $151.7 million, net increases from prior period tax positions of $13.7 million, a net decrease from settlements of $0.9 million and a net decrease from a lapse of statute of limitations of $3.3 million. If favorably settled, $437.4 million of unrecognized tax benefits as of June 28, 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 $44.6 million and $37.1 million as of June 28, 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 $102.8 million and the amount of related interest and penalties could decrease by up to $32.5 million as a result of payments or releases due to the resolution of various U.K. and non-U.K. examinations, appeals and litigation and the expiration of various statutes of limitation.

Due to a legislative change during the three months ended June 28, 2019, the overall corporate income tax rate in Luxembourg has decreased from 26.01% to 24.94% effective January 1, 2019. As a result, the Company’s net deferred tax assets decreased by approximately $65.8 million, and the associated valuation allowances were also decreased by this same amount.