Income Taxes

12 Months Ended

Oct. 27, 2019

On December 22, 2017, the United States enacted comprehensive tax legislation into law, H.R. 1, commonly referred to as The Tax Cuts and Jobs Act (Tax Act). Except for certain provisions, the Tax Act was 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, became effective for the Company in fiscal 2019. The global intangible low taxed income (GILTI) and foreign derived intangible income (FDII) provisions became effective for fiscal 2019 and resulted in an immaterial impact to the Company. For fiscal 2018, the most significant impacts included lowering of the U.S. federal corporate income tax rate, remeasuring certain net deferred tax liabilities, and 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 21.0 percent tax rate for fiscal 2019 and a blended tax rate of 23.4 percent for fiscal 2018, as compared to the pretax reform federal corporate income tax rate of 35.0 percent. The tax rate will continue to be 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. The Company made reasonable estimates to record a net tax benefit of $72.9 million during fiscal 2018. This provisional net tax benefit included 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. The Company completed its provisional tax analysis during the first quarter of 2019 and did not record any significant adjustments to the provisional amounts booked in fiscal 2018.

With respect to the new Tax Act provision on GILTI, the Company has elected to treat GILTI as a period cost.

The components of the Provision for Income Taxes are as follows:



(in thousands)	2019			2018			2017
Current
U.S. Federal	$	161,233		$	134,869		$	329,707
State	30,774			27,782			32,719
Foreign	9,919			13,492			6,950
Total Current	201,926			176,143			369,376
Deferred
U.S. Federal	27,817			(15,573		)	57,533
State	1,473			10,975			4,510
Foreign	(649		)	(2,843		)	123
Total Deferred	28,641			(7,441		)	62,166
Total Provision for Income Taxes	$	230,567		$	168,702		$	431,542

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 27, 2019			October 28, 2018
Deferred Tax Liabilities
Goodwill and Intangible Assets	$	(240,935	)	$	(266,709	)
Tax over Book Depreciation and Basis Differences	(153,104		)	(117,861		)
Other, net	(11,844		)	(11,221		)
Deferred Tax Assets
Pension and Other Post-retirement Benefits	105,948			75,501
Employee Compensation Related Liabilities	65,887			64,852
Marketing and Promotional Accruals	15,581			22,595
Other, net	41,893			35,750
Net Deferred Tax (Liabilities) Assets	$	(176,574	)	$	(197,093	)

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



	2019		2018		2017
U.S. Statutory Rate	21.0	%	23.4	%	35.0	%
State Taxes on Income, Net of Federal Tax Benefit	2.5		2.6		1.7
Domestic Production Activities Deduction	—		(1.5	)	(2.4	)
Divestitures	(1.4	)	—		—
Provisional Tax Law Change	—		(6.3	)	—
Stock-based Compensation	(2.2	)	(3.4	)	—
All Other, net	(0.8	)	(0.5	)	(0.6	)
Effective Tax Rate	19.1	%	14.3	%	33.7	%

In fiscal 2019, the Company recorded a net tax benefit of $17.5 million related to the divestiture of CytoSport.

As of October 27, 2019, the Company had $126.0 million of undistributed earnings from non-U.S. subsidiaries. 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 2019, 2018, and 2017 were $221.4 million, $147.5 million, and $336.0 million, respectively.

The following table sets forth changes in the unrecognized tax benefits, excluding interest and penalties, for fiscal years 2018 and 2019.



(in thousands)
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
Tax Positions Related to the Current Period
Increases	4,885
Tax Positions Related to Prior Periods
Increases	2,997
Decreases	(9,585		)
Settlements	(927		)
Decreases Related to a Lapse of Applicable Statute of Limitations	(2,661		)
Balance as of October 27, 2019	$	27,826

The amount of unrecognized tax benefits, including interest and penalties, is recorded in Other Long-term Liabilities. If recognized as of October 27, 2019, and October 28, 2018, $22.5 million and $26.3 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 $0.1 million and $0.6 million included in expense for fiscal 2019 and 2018, respectively. The amount of accrued interest and penalties at October 27, 2019, and October 28, 2018, associated with unrecognized tax benefits was $6.2 million and $6.5 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 2017 in the second quarter of fiscal 2019. The Company has elected to participate in the Compliance Assurance Process (CAP) for fiscal years through 2021. 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.