Income Taxes

9 Months Ended

Sep. 28, 2019

Income taxes

The consolidated effective tax rate for the quarter ended September 28, 2019 was 27% as compared to 15% in the same quarter of the prior year. The effective tax rate for the third quarter of 2019 was unfavorably impacted by a permanent basis difference in the assets sold to Ferrero partially offset by the resolution of an uncertain tax position. The effective tax rate for the third quarter of 2018 benefited from a $16 million reduction of income tax expense related to the updated estimate of the Company's U.S. Tax Reform transition tax liability.

The consolidated effective tax rate for the year-to-date periods ended September 28, 2019 and September 29, 2018 was 22% and 14%, respectively. The effective tax rate for the year-to-date period ended September 28, 2019 was unfavorably impacted by a permanent basis difference in the assets sold to Ferrero. The effective tax rate for the year-to-date period ended September 29, 2018 benefited from a reduction of income tax expense related to the updated estimate of the Company's transition tax liability, a discretionary pension contribution, and a $44 million discrete tax benefit as a result of the remeasurement of deferred taxes following a legal entity restructuring.

As a result of the divestiture of selected cookies, fruit and fruit-flavored snacks, pie crusts, and ice cream cones businesses during the third quarter of 2019, the Company reclassified approximately $200 million of deferred tax liabilities to current tax liability and recognized approximately $60 million of current tax liability related to permanent basis differences on the assets sold to Ferrero. The Company expects to pay cash taxes of approximately $260 million in the fourth quarter of 2019 related to the divestiture.

As of September 28, 2019, the Company classified $19 million of unrecognized tax benefits as a net current liability. Management’s estimate of reasonably possible changes in unrecognized tax benefits during the next twelve months consists of the current liability balance expected to be settled within one year, offset by approximately $2 million of projected additions related primarily to ongoing intercompany transfer pricing activity. Management is currently unaware of any issues under review that could result in significant additional payments, accruals or other material deviation in this estimate.

The Company’s total gross unrecognized tax benefits as of September 28, 2019 was $86 million. Of this balance, $78 million represents the amount that, if recognized, would affect the Company’s effective income tax rate in future periods.




December 29, 2018	$	97
Tax positions related to current year:
Additions	2
Reductions	—
Tax positions related to prior years:
Additions	—
Reductions	(12		)
Settlements	—
Lapse in statute of limitations	(1		)
September 28, 2019	$	86

The accrual balance for tax-related interest was approximately $11 million at September 28, 2019. During the third quarter of 2019, the Company settled a tax matter resulting in an $11 million reduction of the accrual.