Income Taxes
For income tax purposes, the domestic and foreign components of income (loss) before taxes were as follows:
|
| | | | | | | | | | | |
(In millions) | 2017 | | 2016 | | 2015 |
Domestic | $ | (76.2 | ) | | $ | (44.8 | ) | | $ | (67.5 | ) |
Foreign | 261.3 |
| | 346.1 |
| | 327.4 |
|
Total | $ | 185.1 |
| | $ | 301.3 |
| | $ | 259.9 |
|
The domestic and foreign components of income (loss) before taxes reflect adjustments as required under certain advanced pricing agreements and exclude repatriation of foreign earnings to the United States.
The provision (benefit) for income taxes was as follows:
|
| | | | | | | | | | | |
(In millions) | 2017 | | 2016 | | 2015 |
Current: | | | | | |
Federal | $ | 25.6 |
| | $ | (23.8 | ) | | $ | (22.8 | ) |
Foreign | 136.9 |
| | 114.1 |
| | 92.6 |
|
State | 2.1 |
| | 1.4 |
| | (0.8 | ) |
| 164.6 |
| | 91.7 |
| | 69.0 |
|
Deferred: | | | | | |
Federal | 312.9 |
| | (14.7 | ) | | (13.8 | ) |
Foreign | (25.6 | ) | | 0.2 |
| | 18.2 |
|
State | (1.4 | ) | | 0.5 |
| | 0.7 |
|
| 285.9 |
| | (14.0 | ) | | 5.1 |
|
Total | $ | 450.5 |
| | $ | 77.7 |
| | $ | 74.1 |
|
The differences between the provision for income taxes and income taxes computed using the U.S. federal statutory rate were as follows:
|
| | | | | | | | | | | |
(In millions) | 2017 | | 2016 | | 2015 |
Amount computed using statutory rate | $ | 64.8 |
| | $ | 105.5 |
| | $ | 91.0 |
|
Increase (reduction) in taxes resulting from: | | | | | |
Net impact from repatriating foreign earnings and direct foreign tax credits | (5.8 | ) | | (16.3 | ) | | (7.9 | ) |
Foreign income taxes | 14.3 |
| | (7.5 | ) | | (4.6 | ) |
Impact of non-deductible currency translation losses | — |
| | — |
| | 3.1 |
|
Impact of changes in U.S. tax legislation | 375.0 |
| | (2.7 | ) | | — |
|
Other changes in valuation allowances for deferred tax assets | 5.3 |
| | (0.1 | ) | | (0.4 | ) |
Foreign and domestic tax audit settlement and adjustments | (2.5 | ) | | — |
| | (2.4 | ) |
Other | (0.6 | ) | | (1.2 | ) | | (4.7 | ) |
Total | $ | 450.5 |
| | $ | 77.7 |
| | $ | 74.1 |
|
The effective tax rates in 2016 and 2015 are below the U.S. statutory rate, primarily reflecting the availability of excess foreign tax credits, as well as lower foreign effective tax rates.
The Tax Act referred to in the Summary of Significant Accounting Policies - Income Taxes significantly revised U.S. corporate income tax law by, among other things, reducing the U.S. federal corporate rate to 21 percent and implementing a modified territorial tax system that includes a one-time transition tax on deemed repatriated earnings of foreign subsidiaries.
Implementation of the Tax Act resulted in recording $264 million in expense for the revaluation of the Company’s net domestic deferred tax assets and a one-time provisional transition tax charge of approximately $96 million for the repatriation tax provision of the Tax Act. Reversal of various net tax benefits recorded under previous tax law changed by the Tax Act totaled $15 million. In reaching these estimates, the Company took into account all available guidance and notices issued by the U.S. Department of the Treasury. The amounts are to be considered provisional and are subject to change given the complexity of the underlying calculations and uncertainty as to how some provisions of the Tax Act are to be applied. The Company will update and conclude its accounting as additional information is obtained, which in many cases is contingent on the timing of issuance of regulatory guidance.
The Company continues to analyze the impact of provisions that will be effective in future years. Relevant to the 2017 Consolidated Financial Statements is the Company’s selection of an accounting policy with respect to the new minimum tax on global intangible low-taxed income (“GILTI”), and whether to account for GILTI as a periodic charge in the period it arises, or to record deferred taxes associated with the basis in the Company’s foreign subsidiaries. Due to the intricacy of this topic, the Company is still in the process of investigating the implications of accounting for the GILTI tax, and intends to make an accounting policy decision once additional guidance is available.
Deferred tax assets (liabilities) were composed of the following:
|
| | | | | | | |
(In millions) | 2017 | | 2016 |
Purchased intangibles | $ | (20.3 | ) | | $ | (21.7 | ) |
Other | (6.5 | ) | | (14.1 | ) |
Gross deferred tax liabilities | (26.8 | ) | | (35.8 | ) |
Credit and net operating loss carry forwards (net of unrecognized tax benefits) | 295.9 |
| | 301.2 |
|
Employee benefits accruals | 51.0 |
| | 63.1 |
|
Deferred costs | 48.0 |
| | 92.2 |
|
Fixed assets basis differences | 17.8 |
| | 22.4 |
|
Capitalized intangibles | 21.4 |
| | 34.2 |
|
Other accruals | 33.5 |
| | 32.1 |
|
Accounts receivable | 10.7 |
| | 11.3 |
|
Post-retirement benefits | 4.5 |
| | 7.1 |
|
Depreciation | 11.2 |
| | 13.4 |
|
Inventory | 5.3 |
| | 6.4 |
|
Gross deferred tax assets | 499.3 |
| | 583.4 |
|
Valuation allowances | (235.5 | ) | | (24.8 | ) |
Net deferred tax assets | $ | 237.0 |
| | $ | 522.8 |
|
At December 30, 2017, the Company had domestic federal and state net operating loss carryforward of $14.2 million, separate state net operating loss carry forwards of $9.0 million, and a valuation allowance of $5.2 million. The Company had foreign net operating loss carry forwards of $300.1 million, resulting in a deferred tax asset of $86.9 million and a valuation allowance of $37.5 million. Of the total foreign and domestic net operating loss carry forwards, $217.1 million expire at various dates from 2019 to 2036, while the remainder have unlimited lives. This balance included net deferred tax assets of $3.0 million for federal net operating losses, which will expire in the years 2025 through 2035 if not utilized, $29.7 million of foreign net operating losses which will expire in 2026 if not utilized. During 2017, the Company realized net cash benefits of $6.3 million related to foreign net operating loss carry forwards. At December 30, 2017 and December 31, 2016, the Company had estimated gross foreign tax credit carry forwards of $199.2 million and $215.0 million, respectively and a valuation allowance of $188.8 million at December 30, 2017 and no valuation allowance prior to the tax reform. The increase in valuation allowance was primarily from the estimated impact of the limitation of usage of foreign tax credit carryforwards under the Tax Act. The valuation allowance assessment is based in part upon expected future domestic results under the Tax Act, and available foreign source income, including rents and royalties available for credit usage under the Tax Act, as well as anticipated gains related to future sales of land held for development near the Company's Orlando, Florida headquarters.
The Company paid income taxes in 2017, 2016 and 2015 of $123.3 million, $118.7 million and $113.7 million, respectively. The Company has a foreign subsidiary which receives a tax holiday that expires in 2020. The net benefit of this and other expired tax holidays was $0.7 million, $1.3 million and $2.6 million in 2017, 2016 and 2015, respectively.
As of December 30, 2017 and December 31, 2016, the Company's accrual for uncertain tax positions was $19.8 million and $20.7 million, respectively. The Company estimates that approximately $19.2 million of that amount, if recognized, would impact the effective tax rate. A reconciliation of the beginning and ending amount of accrual for uncertain tax positions is as follows:
|
| | | | | | | | | | | |
(In millions) | 2017 | | 2016 | | 2015 |
Balance, beginning of year | $ | 20.7 |
| | $ | 21.8 |
| | $ | 22.5 |
|
Additions based on tax positions related to the current year | 3.6 |
| | 2.7 |
| | 3.3 |
|
Additions for tax positions of prior year | 2.2 |
| | 1.2 |
| | 3.4 |
|
Reduction for tax positions of prior years | (3.0 | ) | | (1.2 | ) | | (1.6 | ) |
Settlements | (1.2 | ) | | — |
| | (1.1 | ) |
Reductions for lapse in statute of limitations | (3.7 | ) | | (3.1 | ) | | (3.2 | ) |
Impact of foreign currency rate changes versus the U.S. dollar | 1.2 |
| | (0.7 | ) | | (1.5 | ) |
Balance, end of year | $ | 19.8 |
| | $ | 20.7 |
| | $ | 21.8 |
|
Interest and penalties related to uncertain tax positions in the Company's global operations are recorded as a component of the provision for income taxes. Accrued interest and penalties were $7.3 million and $7.1 million as of December 30, 2017 and December 31, 2016, respectively. Interest and penalties included in the provision for income taxes totaled $0.2 million and $1.1 million for 2017 and 2016, respectively and no significant interest and penalties included in the provision for income taxes for 2015.
During the year ended December 30, 2017, the accrual for uncertain tax positions decreased by $3.7 million primarily due to the expiration of the statute of limitations in various jurisdictions and decreased by another $1.2 million as a result of the Company agreeing to tax settlements in various foreign tax jurisdictions. During the year, increases in uncertain positions being taken during the year in various foreign tax jurisdictions were partially offset by the impact of changes in foreign exchange rates.
During the year ended December 31, 2016, the accrual for uncertain tax positions decreased by $3.1 million primarily due to the expiration of the statute of limitations in various jurisdictions. During the year, increases in uncertain positions being taken during the year in various foreign tax jurisdictions were partially offset by the impact of changes in foreign exchange rates.
During the year ended December 26, 2015, the accrual for uncertain tax positions decreased by $1.1 million primarily as a result of the Company agreeing to tax settlements in various foreign jurisdictions, as well as a $3.2 million decrease of accruals for uncertain tax positions due to the expiration of the statute of limitations in various jurisdictions. During the year, increases in uncertain positions being taken in various foreign tax jurisdictions were partially offset by the impact of changes in foreign exchange rates.
The Company operates globally and files income tax returns in the United States with federal and various state agencies, and in foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world. The Company is no longer subject to income tax examination in the following major jurisdictions: for U.S. tax for years before 2003, Australia (2012), Brazil (2005), China (2005), France (2012), Germany (2011), Greece (2011), India (2002), Indonesia (2010), Italy (2015), Malaysia (2010), Mexico (2005), and South Africa (2013), with limited exceptions.
The Company estimates that it may settle one or more foreign and domestic audits in the next twelve months that may result in a decrease in the amount of accrual for uncertain tax positions of up to $0.8 million. For the remaining balance as of December 30, 2017, the Company is not able to reliably estimate the timing or ultimate settlement amount. While the Company does not currently expect material changes, it is possible that the amount of unrecognized benefit with respect to the uncertain tax positions will significantly increase or decrease related to audits in various foreign jurisdictions that may conclude during that period or new developments that could also, in turn, impact the Company's assessment relative to the establishment of valuation allowances against certain existing deferred tax assets. At this time, the Company is not able to make a reasonable estimate of the range of impact on the balance of unrecognized tax benefits or the impact on the effective tax rate related to these items.
As of December 30, 2017, the Company had foreign undistributed earnings of $1.7 billion where it is the Company's intent that the earnings be reinvested indefinitely. The Company is in the process of evaluating the impact of the Tax Act on its indefinite reinvestment assertion, including the impact of foreign withholding taxes and it expects to complete its evaluation in the one-year period provided by SAB 118. With respect to accumulated earnings of foreign subsidiaries, no additional U.S. federal and state income taxes or foreign withholding taxes have been provided as all accumulated earnings of foreign subsidiaries are deemed to have been remitted as part of the one-time mandatory repatriation transition tax charge recorded in 2017, although the amount recorded is subject to adjustment if estimates change. In the event that in certain foreign jurisdictions earnings that are currently considered indefinitely invested would no longer be classified as such, expense would be recorded at that time for withholding taxes that would be due in the foreign jurisdictions when those earnings are repatriated.