Income Taxes

12 Months Ended

Oct. 25, 2020

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 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, 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 fiscal 2019 and did not record any significant adjustments to the provisional amounts booked in fiscal 2018.

With respect to the 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)	2020		2019		2018
Current
U.S. Federal	$	142,708	$	161,233	$	134,869
State	13,353		30,774		27,782
Foreign	18,293		9,919		13,492
Total Current	174,354		201,926		176,143
Deferred
U.S. Federal	34,408		27,817		(15,573)
State	4,937		1,473		10,975
Foreign	(7,306)		(649)		(2,843)
Total Deferred	32,039		28,641		(7,441)
Total Provision for Income Taxes	$	206,393	$	230,567	$	168,702

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 25, 2020		October 27, 2019
Deferred Tax Liabilities
Goodwill and Intangible Assets	$	(269,218)	$	(240,935)
Tax over Book Depreciation and Basis Differences	(164,911)		(153,104)
Other, net	(24,316)		(11,844)
Deferred Tax Assets
Pension and Other Post-retirement Benefits	97,129		105,948
Employee Compensation Related Liabilities	65,024		65,887
Marketing and Promotional Accruals	20,783		15,581
Other, net	62,302		41,893
Net Deferred Tax (Liabilities) Assets	$	(213,207)	$	(176,574)

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


	2020		2019		2018
U.S. Statutory Rate	21.0	%	21.0	%	23.4	%
State Taxes on Income, Net of Federal Tax Benefit	1.6		2.5		2.6
Domestic Production Activities Deduction	—		—		(1.5)
Divestitures	—		(1.4)		—
Provisional Tax Law Change	—		—		(6.3)
Stock-based Compensation	(3.1)		(2.2)		(3.4)
All Other, net	(1.0)		(0.8)		(0.5)
Effective Tax Rate	18.5	%	19.1	%	14.3	%

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

As of October 25, 2020, the Company had $162.0 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 2020, 2019, and 2018 were $169.7 million, $221.4 million, and $147.5 million, respectively.

The following table sets forth changes in the unrecognized tax benefits, excluding interest and penalties, for fiscal years 2020 and 2019.


(in thousands)
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
Tax Positions Related to the Current Period
Increases	3,177
Tax Positions Related to Prior Periods
Increases	8,299
Decreases	(2,549)
Settlements	(1,107)
Decreases Related to a Lapse of Applicable Statute of Limitations	(2,404)
Balance as of October 25, 2020	$	33,242

The amount of unrecognized tax benefits, including interest and penalties, is recorded in Other Long-term Liabilities. If recognized as of October 25, 2020, and October 27, 2019, $29.1 million, and $22.5 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 $1.9 million and $0.1 million included in expense for fiscal 2020 and 2019, respectively. The amount of accrued interest and penalties at October 25, 2020, and October 27, 2019, associated with unrecognized tax benefits was $7.2 million and $6.2 million, respectively.

The Company is regularly audited by federal and state taxing authorities. The U.S. Internal Revenue Service (I.R.S.) concluded their examination of fiscal 2018 in the fourth quarter of fiscal 2020. 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.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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