Income Taxes

12 Months Ended

Dec. 28, 2019

Income before taxes consisted of the following (in millions):



	2019		2018		2017
United States	$	126.7	$	121.5	$	147.4
Foreign	177.1		170.7		129.8
Total	$	303.8	$	292.2	$	277.2

The provision for income taxes is summarized as follows (in millions):



	2019			2018			2017
Current
Federal	$	1.8		$	4.5		$	36.9
State	1.1			0.8			(0.3		)
Foreign	35.9			37.9			32.2
	$	38.8		$	43.2		$	68.8
Deferred
Federal	$	20.4		$	16.6		$	(7.2	)
State	2.6			2.1			2.2
Foreign	(0.6		)	(5.5		)	(4.7		)
	22.4			13.2			(9.7		)
Total	$	61.2		$	56.4		$	59.1

A reconciliation of the statutory federal income tax rate and the effective tax rate reflected in the consolidated statements of income follows:



	2019	2018	2017
Federal Statutory Rate	21.0%	21.0%	35.0%
State Income Taxes, Net of Federal Benefit	1.3%	1.1%	0.3%
Domestic Production Activities Deduction	—%	—%	(1.0)%
Foreign Rate Differential - China	0.9%	0.9%	(2.1)%
Foreign Rate Differential - All Other	(2.8)%	(1.4)%	(4.3)%
Research and Development Credit	(2.5)%	(2.5)%	(3.0)%
Valuation Allowance	0.8%	(0.3)%	(0.6)%
Tax Cuts and Jobs Act of 2017	—%	(1.3)%	(0.4)%
Tax on Repatriation	3.4%	1.3%	—%
Adjustments to Tax Accruals and Reserves	0.3%	—%	(1.9)%
Tax Impact of Divestitures	(1.7)%	—%	—%
Other	(0.6)%	0.5%	(0.7)%
Effective Tax Rate	20.1%	19.3%	21.3%

Deferred taxes arise primarily from differences in amounts reported for tax and financial statement purposes. The Company's net deferred tax liability was $(113.5) million as of December 28, 2019, classified on the consolidated Balance Sheet as a net non-current deferred tax asset of $58.4 million and a net non-current deferred income tax liability of $(171.9) million. As of December 29,

2018, the Company's net deferred tax liability was $(114.1) million classified on the consolidated Balance Sheet as a net non-current deferred income tax benefit of $34.2 million and a net non-current deferred income tax liability of $(148.3) million.

The components of this net deferred tax liability are as follows (in millions):



	December 28, 2019			December 29, 2018
Accrued Benefits	$	54.3		$	53.9
Bad Debt Allowances	2.0			2.2
Warranty Accruals	2.5			3.6
Inventory	7.3			14.6
Accrued Liabilities	(2.6		)	(8.0		)
Derivative Instruments	1.4			1.8
Tax Loss Carryforward	35.4			13.1
Valuation Allowance	(12.9		)	(4.9		)
Operating Lease Liability	17.2			—
Other	18.0			14.0
Deferred Tax Assets	122.6			90.3
Property Related	(36.1		)	(32.2		)
Intangible Items	(182.8		)	(172.2		)
Operating Lease Asset	(17.2		)	—
Deferred Tax Liabilities	(236.1		)	(204.4		)
Net Deferred Tax Liability	$	(113.5	)	$	(114.1	)

Following is a reconciliation of the beginning and ending amount of unrecognized tax benefits (in millions):



Unrecognized Tax Benefits, December 31, 2016	$	10.0
Gross Increases from Prior Period Tax Positions	—
Gross Increases from Current Period Tax Positions	2.7
Settlements with Taxing Authorities	(5.3		)
Lapse of Statute of Limitations	(0.7		)
Unrecognized Tax Benefits, December 30, 2017	$	6.7
Gross Increases from Prior Period Tax Positions	—
Gross Increases from Current Period Tax Positions	0.3
Settlements with Taxing Authorities	(0.1		)
Lapse of Statute of Limitations	(0.4		)
Unrecognized Tax Benefits, December 29, 2018	$	6.5
Gross Increases from Prior Period Tax Positions	—
Gross Increases from Current Period Tax Positions	0.7
Settlements with Taxing Authorities	—
Lapse of Statute of Limitations	(0.3		)
Unrecognized Tax Benefits, December 28, 2019	$	6.9

Unrecognized tax benefits as of December 28, 2019 amount to $6.9 million, all of which would impact the effective income tax rate if recognized.

Potential interest and penalties related to unrecognized tax benefits are recorded in income tax expense. During fiscal years 2019, 2018 and 2017, the Company recognized approximately $0.5 million, $0.2 million and $(0.2) million in net interest (income) expense, respectively. The Company had approximately $2.3 million, $1.9 million and $1.7 million of accrued interest as of December 28, 2019, December 29, 2018 and December 30, 2017, respectively.

Due to statute expirations, approximately $0.4 million of the unrecognized tax benefits, including accrued interest, could reasonably change in the coming year.

With few exceptions, the Company is no longer subject to US federal and state/local income tax examinations by tax authorities for years prior to 2014, and the Company is no longer subject to non-US income tax examinations by tax authorities for years prior to 2012.

As of December 28, 2019, the Company had approximately $35.4 million of tax effected net operating losses in various jurisdictions with a portion expiring over a period of up to 15 years and the remaining without expiration. As of December 29, 2018, the Company had approximately $13.1 million of tax effected net operating losses in various jurisdictions with a portion expiring over a period up to 15 years and the remaining without expiration.

Valuation allowances totaling $12.9 million and $4.9 million as of December 28, 2019 and December 29, 2018, respectively, have been established for deferred income tax assets primarily related to certain subsidiary loss carryforwards that may not be realized. Realization of the net deferred income tax assets is dependent on generating sufficient taxable income prior to their expiration. Although realization is not assured, management believes it is more-likely-than-not that the net deferred income tax assets will be realized. The amount of the net deferred income tax assets considered realizable, however, could change in the near term if future taxable income during the carryforward period fluctuates.

The Company has been granted tax holidays for some of its Chinese subsidiaries. Some of these tax holidays expired in 2019 and others will expire in 2020. All tax holidays will be renewed subject to certain conditions with which the Company expects to comply. In 2019, these holidays decreased the Provision for Income Taxes by $3.9 million.

The Company continues to treat approximately $123.2 million of earnings from certain foreign entities as permanently reinvested and has not recorded a deferred tax liability for the local withholding taxes of approximately $19.1 million on those earnings.