Taxes on Earnings

The Tax Cuts and Jobs Act of 2017 (the Act) was enacted into law on December 22, 2017, and made significant changes to corporate taxation. Changes under the Act include:


•	Reducing the federal corporate tax rate from 35% to 21% effective January 1, 2018;


•	Eliminating the deduction for domestic manufacturing activities, which impacts us beginning in 2019;


•	Repealing the exception for deductibility of performance-based compensation to covered employees, which impacts us beginning in 2019, along with expanding the number of covered employees;


•	Transitioning to a territorial system for taxation on foreign earnings along with the imposition of a transition tax in 2018 on the deemed repatriation of unremitted foreign earnings;


•	Limiting the deductibility of interest expense to 30% of adjusted taxable income, which is effective for us beginning in 2019 ;


•	Immediate expensing of machinery and equipment placed into service after September 27, 2017; and


•	Changes to the taxation of multinational companies, including a new minimum tax on Global Intangible Low-Taxed Income, a new Base Erosion Anti-Abuse Tax, and a new U.S. corporate deduction for Foreign-Derived Intangible Income, all of which are effective for us beginning in 2019.

The U.S. Securities and Exchange Commission recently released Staff Accounting Bulletin (SAB) 118, which allows for a measurement period while a company obtains, prepares, and analyzes the information necessary to finalize its accounting for the effects of the Act. Specifically, SAB 118 details a three-step process that should apply to each reporting period:


•	First, report the effects of the Act for which the accounting is complete;


•	Second, report provisional amounts for which the accounting is not complete, but a reasonable estimate can be determined; and


•	Third, do not report a provisional amount for which a reasonable estimate cannot be made.

Based on the Act and SAB 118, the following items are reflected in this quarter:


•	The corporate rate reduction as of January 1, 2018, resulted in a blended U.S. statutory tax rate of approximately 27%;


•	Remeasurement of deferred tax assets and liabilities resulted in a tax benefit of $183; and


•	Imposition of a transition tax on unremitted foreign earnings resulted in a tax charge of $59.

The amounts recorded represent provisional amounts based on our best estimates and current interpretation of the provisions of the Act and may change as additional guidance is issued.

During the first quarter of 2018, we settled a state tax audit which resulted in the recognition of a $15 benefit that impacted the effective tax rate, and a $33 reduction in unrecognized tax benefits. The balance of unrecognized tax benefits as of January 28, 2018, was $32, of which $21 would impact the effective tax rate if recognized. The total amount of unrecognized tax benefits can change due to audit settlements, tax examination activities, statute expirations and the recognition and measurement criteria under accounting for uncertainty in income taxes.