INCOME TAXES

12 Months Ended

Dec. 29, 2019

Income before income taxes by jurisdiction is as follows:



	2019		2018		2017
	(In thousands)
U.S.	$	342,110	$	175,805	$	773,160
Foreign	275,435		156,422		208,906
Total	$	617,545	$	332,227	$	982,066

The components of income tax expense are set forth below:



	2019			2018			2017
	(In thousands)
Current:
Federal	$	27,585		$	8,835		$	213,146
Foreign	78,099			45,311			65,100
State and other	12,847			(1,263		)	35,614
Total current	118,531			52,883			313,860
Deferred:
Federal	51,387			41,104			(19,434		)
Foreign	(18,596		)	(17,160		)	(34,264		)
State and other	9,687			8,596			3,737
Total deferred	42,478			32,540			(49,961		)
	$	161,009		$	85,423		$	263,899

The effective tax rate for 2019 was 26.1% compared to 25.7% for 2018 and 26.9% for 2017.

The following table reconciles the statutory U.S. federal income tax rate to the Company’s effective income tax rate:



	2019			2018			2017
Federal income tax rate	21.0		%	21.0		%	35.0		%
State tax rate, net	3.0			3.6			2.6
One-time transition tax	—			7.9			—
Permanent items	(1.7	)		1.4			—
Domestic production activity	—			—			(1.6	)
Difference in U.S. statutory tax rate and foreign country effective tax rate	2.1			2.3			(1.4	)
Rate change	(0.1	)		(2.5	)		(5.3	)
Tax credits	(0.7	)		(7.9	)		(0.5	)
Change in reserve for unrecognized tax benefits	2.7			(1.7	)		(0.7	)
Change in valuation allowance	0.1			2.7			(1.2	)
Other	(0.3	)		(1.1	)		—
Total	26.1		%	25.7		%	26.9		%

Included in the change in reserve for unrecognized tax benefits is an increase of 2.6% in the effective tax rate related to a specific transaction undertaken by a Mexico subsidiary of the Company during tax year 2011. The amount was recorded and paid during the fifty-two weeks ended December 29, 2019.

Significant components of the Company’s deferred tax liabilities and assets are as follows:



	December 29, 2019			December 30, 2018
	(In thousands)
Deferred tax liabilities:
PP&E and identified intangible assets	$	290,427		$	217,353
Inventories	81,469			69,464
Insurance claims and losses	31,642			29,964
Business combinations	47,450			46,779
Incentive compensation	12,860			11,838
Operating lease assets	68,846			—
Other	14,267			11,596
Total deferred tax liabilities	546,961			386,994
Deferred tax assets:
Net operating losses	3,120			2,923
Foreign net operating losses	50,806			38,531
Credit carry forwards	15,575			14,461
Allowance for doubtful accounts	5,429			6,788
Accrued liabilities	51,148			60,572
Workers compensation	36,147			25,297
Pension and other postretirement benefits	29,429			28,266
Operating lease liabilities	68,846			—
Other	22,502			3,133
Total deferred tax assets	283,002			179,971
Valuation allowance	(33,522		)	(26,150		)
Net deferred tax assets	249,480			153,821
Net deferred tax liabilities	$	297,481		$	233,173

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carry back and carry forward periods), projected future taxable income and tax-planning strategies in making this assessment.

As of December 29, 2019, the Company believes it has sufficient positive evidence to conclude that realization of its federal, state and foreign net deferred tax assets are more likely than not to be realized. The increase in valuation allowance of $7.4 million during 2019 was primarily due to the acquisition of Tulip. As of December 29, 2019, the Company’s valuation allowance is $33.5 million, of which $12.6 million relates to its Moy Park operations, $8.2 million relates to its Tulip operations, $11.7 million relates to U.S. foreign tax credits and $1.0 million relates to state net operating losses.

As of December 29, 2019, the Company had state net operating loss carry forwards of approximately $79.8 million that begin to expire in 2020. The Company also had Mexico net operating loss carry forwards as of December 29, 2019 of approximately $10.2 million that begin to expire in 2021. The Company also had U.K. net operating loss carry forwards as of December 29, 2019 of approximately $175.2 million that may be carried forward indefinitely.

As of December 29, 2019, the Company had approximately $3.7 million of state tax credit carry forwards that begin to expire in 2020.

For the fifty-two weeks ended December 29, 2019 and fifty-two weeks ended December 30, 2018, there is a tax effect of $0.7 million and $1.6 million, respectively, reflected in other comprehensive income.

For the fifty-two weeks ended December 29, 2019, there are immaterial tax effects reflected in income tax expense due to excess tax benefits and shortfalls related to share-based compensation. For the fifty-two weeks ended December 30, 2018, there is a tax effect of ($0.8) million reflected in income tax expense due to excess tax benefits related to share-based compensation. See “Note 1. Business and Summary of Significant Accounting Policies” for additional information.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:



	December 29, 2019			December 30, 2018
	(In thousands)
Unrecognized tax benefits, beginning of year	$	12,412		$	11,866
Increase as a result of tax positions taken during the current year	—			261
Increase as a result of tax positions taken during prior years	597			1,152
Decrease for lapse in statute of limitations	(233		)	(867		)
Unrecognized tax benefits, end of year	$	12,776		$	12,412

Included in unrecognized tax benefits of $12.8 million as of December 29, 2019, was $1.2 million of tax benefits that, if recognized, would reduce the Company’s effective tax rate. It is not practicable at this time to estimate the amount of unrecognized tax benefits that will change in the next twelve months.

The Company recognizes interest and penalties related to unrecognized tax benefits in its provision for income taxes. As of December 29, 2019, the Company had recorded a liability of $2.3 million for interest and penalties. During 2019, accrued interest and penalty amounts related to uncertain tax positions increased by $0.8 million.

The Company operates in the U.S. (including multiple state jurisdictions), Puerto Rico and several foreign locations including Mexico and the U.K. With few exceptions, the Company is no longer subject to examinations by taxing authorities for years prior to 2015 in U.S. federal, state and local jurisdictions, for years prior to 2011 in Mexico, and for years prior to 2017 in the U.K.

The Company has a tax sharing agreement with JBS USA Food Company Holdings effective for tax years beginning 2010. No net tax payable was accrued for the 2019 tax year.