Income Taxes

On December 22, 2017, the United States enacted comprehensive tax legislation into law, H.R. 1, commonly referred to as the Tax Act. Except for certain provisions, the Tax Act is effective for tax years beginning on or after January 1, 2018. As a fiscal year U.S. taxpayer, the majority of the provisions, such as eliminating the domestic manufacturing deduction, creating new taxes on certain foreign sourced income, and introducing new limitations on certain business deductions, will not apply for the Company until fiscal 2019. For fiscal 2018, and effective in the first quarter, the most significant impacts include lowering of the U.S. federal corporate income tax rate, remeasuring certain net deferred tax liabilities, and requiring the transition tax on the deemed repatriation of certain foreign earnings. The phase-in of the lower federal corporate income tax rate resulted in a blended rate of 23.4 percent for fiscal 2018, as compared to the previous 35.0 percent, and is based on the applicable tax rates before and after passage of the Tax Act and the number of days in the fiscal year. The tax rate will be reduced to 21.0 percent in subsequent fiscal years.

In March 2018, the FASB issued ASU 2018-05, which provides guidance for companies related to the Tax Act. ASU 2018-05 allows for a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts. Based on current interpretation of the Tax Act, the Company made reasonable estimates to record provisional adjustments during the fiscal 2018, as described above. As the Company accumulates and processes data to finalize the underlying calculations, and as regulators issue further guidance, estimates may change during the first quarter of fiscal 2019. The Company will continue to refine such amounts within the measurement period allowed, which will be completed no later than the first quarter of fiscal 2019.

In connection with the Company’s ongoing analysis of the impact of the U.S. tax law changes, which is provisional and subject to change, the Company recorded a net tax benefit of $72.9 million during fiscal 2018. This provisional net tax benefit arises from a benefit of $81.2 million from re-measuring the Company’s net U.S. deferred tax liabilities, partially offset by the Company’s accrual for the transition tax and other U.S. tax law changes of $8.3 million.

With respect to the new Tax Act provision on global intangible low-tax income (GILTI), which will apply to the Company starting in fiscal 2019, we have not made an accounting policy election on the deferred tax treatment.

The components of the provision for income taxes are as follows:



(in thousands)	2018			2017		2016
Current
U.S. Federal	$	134,869		$	329,707	$	341,799
State	27,782			32,719		33,753
Foreign	13,492			6,950		6,819
Total current	176,143			369,376		382,371
Deferred
U.S. Federal	(15,573		)	57,533		40,456
State	10,975			4,510		3,770
Foreign	(2,843		)	123		101
Total deferred	(7,441		)	62,166		44,327
Total provision for income taxes	$	168,702		$	431,542	$	426,698

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the deferred income tax liabilities and assets are as follows:



(in thousands)	October 28, 2018			October 29, 2017
Deferred tax liabilities
Goodwill and intangible assets	$	(266,709	)	$	(298,159	)
Tax over book depreciation and basis differences	(117,861		)	(107,076		)
Other, net	(11,221		)	(18,657		)
Deferred tax assets
Pension and post-retirement benefits	75,501			144,392
Employee compensation related liabilities	64,852			100,311
Marketing and promotional accruals	22,595			32,011
Other, net	35,750			48,768
Net deferred tax (liabilities) assets	$	(197,093	)	$	(98,410	)

Reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is as follows:



	2018		2017		2016
U.S. statutory rate	23.4	%	35.0	%	35.0	%
State taxes on income, net of federal tax benefit	2.6		1.7		2.1
Domestic production activities deduction	(1.5	)	(2.4	)	(2.8	)
Foreign tax credit	—		—		(0.9	)
Provisional tax law change	(6.3	)	—		—
Equity based compensation	(3.4	)	—		—
All other, net	(0.5	)	(0.6	)	(1.0	)
Effective tax rate	14.3	%	33.7	%	32.4	%

In fiscal 2016, the Company approved a repatriation of $38.0 million of foreign earnings related to an international entity restructuring which generated a U.S. tax benefit of $12.1 million. The Company recorded a favorable discrete tax event related to this transaction.

During 2018, the Company provisionally recorded the transition tax on its foreign earnings. Those foreign earnings, aggregating to approximately $105.9 million at October 28, 2018, have been deemed repatriated for U.S. federal tax purposes. The Company maintains all earnings are permanently reinvested. Accordingly, no additional income taxes have been provided for withholding tax, state tax, or other taxes.

Total income taxes paid during fiscal years 2018, 2017, and 2016 were $147.5 million, $336.0 million, and $372.0 million, respectively.

The following table sets forth changes in the unrecognized tax benefits, excluding interest and penalties, for fiscal years 2017 and 2018.



(in thousands)
Balance as of October 30, 2016	$	27,389
Tax positions related to the current period
Increases	3,094
Tax positions related to prior periods
Increases	8,923
Decreases	(2,388		)
Settlements	(1,825		)
Decreases related to a lapse of applicable statute of limitations	(2,396		)
Balance as of October 29, 2017	$	32,797
Tax positions related to the current period
Increases	3,540
Tax positions related to prior periods
Increases	3,712
Decreases	(1,874		)
Settlements	(2,702		)
Decreases related to a lapse of applicable statute of limitations	(2,356		)
Balance as of October 28, 2018	$	33,117

The amount of unrecognized tax benefits, including interest and penalties, is recorded in other long-term liabilities. If recognized as of October 28, 2018, and October 29, 2017, $26.3 million and $20.2 million, respectively, would impact the Company’s effective tax rate. The Company includes accrued interest and penalties related to uncertain tax positions in income tax expense, with losses of $0.6 million and $0.1 million included in expense for fiscal 2018 and 2017, respectively. The amount of accrued interest and penalties at October 28, 2018, and October 29, 2017, associated with unrecognized tax benefits was $6.5 million and $7.1 million, respectively.

The Company is regularly audited by federal and state taxing authorities. The United States Internal Revenue Service (I.R.S.) concluded their examination of fiscal 2016 in the first quarter of fiscal 2018. The Company has elected to participate in the Compliance Assurance Process (CAP) for fiscal years through 2019. The objective of CAP is to contemporaneously work with the I.R.S. to achieve federal tax compliance and resolve all or most of the issues prior to filing of the tax return. The Company may elect to continue participating in CAP for future tax years; the Company may withdraw from the program at any time.

The Company is in various stages of audit by several state taxing authorities on a variety of fiscal years, as far back as 2011. While it is reasonably possible that one or more of these audits may be completed within the next 12 months and the related unrecognized tax benefits may change based on the status of the examinations, it is not possible to reasonably estimate the effect of any amount of such change to previously recorded uncertain tax positions.