INCOME TAXES

3 Months Ended

Apr. 04, 2020

The Company’s income tax (benefit) expense and related effective rates were as follows (in thousands, except percentage data):



	For the 14 Weeks Ended April 4, 2020			For the 13 Weeks Ended March 30, 2019
Income tax (benefit) expense	$	(63,651	)	$	9,608
Effective tax rate	42.7		%	(446.1		)%

For the First Quarter, the Company computed its effective tax rate using actual year-to-date information rather than a full year forecast to compute the annual effective tax rate. Estimating a reliable or meaningful annual effective tax rate for fiscal year 2020 was not possible due to the range of potential impacts and resulting uncertainties related to the global COVID-19 pandemic. Accordingly, the Company concluded that computing its effective tax rate using actual year-to-date results is the best estimate of tax expense (benefit) for the First Quarter.

The tax rate in the First Quarter was favorable as compared to the Prior Year Quarter primarily due to changes enacted in the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), which was signed into law on March 27, 2020. The CARES Act included many beneficial income tax provisions including utilization of net operating losses ("NOLs"), temporary changes to the limitation on interest deductions, and technical corrections to tax depreciation for qualified improvement property. The Tax Cuts and Jobs Act had eliminated the option for most taxpayers to carryback a NOL after 2017. A NOL could only be carried forward and was limited to 80% of taxable income. The CARES Act now allows U.S. taxpayers to carryback a NOL arising in tax years 2018, 2019 and 2020 to prior years when the statutory tax rate was 35%.

For the First Quarter, the Company recognized a $61 million U.S. tax benefit primarily due to the favorable five year NOL carryback provisions under the CARES Act that will allow the 2020 tax loss to be carried back to prior years. The remaining benefit was due to foreign return to provision adjustments and foreign NOL carryforwards. The effective tax rate can vary from quarter to quarter due to changes in the Company's global mix of earnings, impacts of COVID-19, the resolution of income tax audits and changes in tax law.

The Prior Year Quarter effective tax rate was negative since income tax expense was accrued on certain foreign entities with positive taxable income and because no benefit was recognized for losses in the U.S. and certain other foreign jurisdictions. Due to Global Intangible Low-Taxed Income ("GILTI") provision of the Tax Cuts and Jobs Act, certain foreign income is included in U.S. taxable income effectively absorbing the U.S. NOLs, eliminating the availability of any future tax benefit or loss carryback.

As of April 4, 2020, the Company's total amount of unrecognized tax benefits, excluding interest and penalties, was $35.0 million, of which $29.3 million would favorably impact the effective tax rate in future periods, if recognized. The Company is subject to examinations in various state and foreign jurisdictions for its 2011-2018 tax years, none of which the Company believes are significant, individually or in the aggregate. Tax audit outcomes and timing of tax audit settlements are subject to significant uncertainty.

The Company has classified uncertain tax positions as long-term income taxes payable, unless such amounts are expected to be settled within twelve months of the condensed consolidated balance sheet date. As of April 4, 2020, the Company had recorded $11.0 million of unrecognized tax benefits, excluding interest and penalties, for positions that are expected to be settled within the next twelve months. Consistent with its past practice, the Company recognizes interest and/or penalties related to income tax overpayments and income tax underpayments in income tax expense and income taxes receivable/payable. At April 4, 2020, the total amount of accrued income tax-related interest and penalties included in the condensed consolidated balance sheets was $5.2 million and $1.0 million, respectively. For the First Quarter, the Company accrued income tax related interest expense of $0.4 million.