Taxes on Earnings (Tables)

12 Months Ended

Jul. 29, 2018

The provision for income taxes on earnings consists of the following:



	2018		2017		2016
Earnings before income taxes:
United States	$	143	$	1,103	$	705
Non-U.S.	129		190		144
	$	272	$	1,293	$	849

The following is a reconciliation of the effective income tax rate to the U.S. federal statutory income tax rate:



	2018		2017		2016
Federal statutory income tax rate	21.0	%	35.0	%	35.0	%
State income taxes (net of federal tax benefit)	4.3		2.1		2.7
Tax effect of international items	2.6		(2.1	)	(3.0	)
Settlement of tax contingencies	(6.2	)	—		—
Federal manufacturing deduction	(4.0	)	(2.1	)	(3.2	)
Goodwill impairment	18.7		3.4		4.3
Claim settlement	—		—		(0.8	)
Tax Reform - impact on U.S. deferred tax assets and liabilities⁽¹⁾	(66.3	)	—		—
Tax Reform - transition tax⁽¹⁾	19.6		—		—
Effect of higher U.S. federal statutory tax rate⁽¹⁾	13.2		—		—
Foreign exchange losses⁽²⁾	—		(3.9	)	—
Other	1.1		(1.0	)	(1.3	)
Effective income tax rate	4.0	%	31.4	%	33.7	%

_______________________________________


⁽¹⁾	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. A blended rate will apply for fiscal 2018 non-calendar year end companies for the fiscal periods that include the effective date of the rate change. The impact of this is shown as "Effect of higher U.S. federal statutory tax rate";


•	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;


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


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


•	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; and


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


⁽²⁾	The 2017 rate was favorably impacted by a $52 benefit primarily related to the sale of intercompany notes receivable to a financial institution, which resulted in the recognition of foreign exchange losses.

Deferred tax liabilities and assets are comprised of the following:



	2018			2017
Depreciation	$	342		$	355
Amortization	868			521
Other	35			20
Deferred tax liabilities	1,245			896
Benefits and compensation	144			241
Pension benefits	24			98
Tax loss carryforwards	65			36
Capital loss carryforwards	88			92
Other	92			95
Gross deferred tax assets	413			562
Deferred tax asset valuation allowance	(133		)	(120		)
Deferred tax assets, net of valuation allowance	280			442
Net deferred tax liability	$	965		$	454

A reconciliation of the activity related to unrecognized tax benefits follows:



	2018			2017			2016
Balance at beginning of year	$	64		$	63		$	58
Increases related to prior-year tax positions	—			4			2
Decreases related to prior-year tax positions	(37		)	—			—
Increases related to current-year tax positions	2			4			3
Settlements	(1		)	(7		)	—
Increase due to acquisitions	4			—			—
Balance at end of year	$	32		$	64		$	63