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Income Taxes | 9 Months Ended
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Sep. 29, 2018
Income Tax Disclosure [Abstract] |
Income Taxes | 8 Income Taxes In December 2017, the U.S. enacted legislation informally referred to as the Tax Cuts and Jobs Act (the “2017 Tax Act”). For the year ended December 31, 2017 the Company accrued a $550 million tax provision related to the 2017 Tax Act. The $550 million expense consisted of $490 million related to the federal toll charge, $40 million for state income taxes and foreign withholding taxes and $20 million for the revaluation of the Company’s deferred tax assets and liabilities at the new federal tax rate of 21%. During the third quarter of 2018, the Internal Revenue Service issued proposed regulations on the federal toll charge and various states issued additional guidance. The Company revised its analysis and calculation of the federal toll charge. In addition, the Company was able to conclude upon the treatment in certain state jurisdictions and expects to complete its analysis in the fourth quarter of 2018. As a result of the new guidance issued and additional work to complete the calculation of its federal toll charge, the Company reduced its provisional accrual for federal, state and foreign taxes by net $19 million during the three months ended September 29, 2018. In addition, the Company also assessed its uncertain tax positions related to these taxes and accrued income tax reserves of $18 million during both the three months ended and nine months ended September 29, 2018. The Company will continue to analyze any new guidance from the tax authorities, as well as any new information, and expects to finalize its analysis of the toll charge and related liabilities, including uncertain tax positions, in the fourth quarter of 2018 pursuant to SEC Staff Accounting Bulletin No. 118. As part of the 2017 Tax Act, there is a provision for the taxation of certain off-shore earnings referred to as the Global Intangible Low-Taxed Income (“GILTI”) provision. This new provision taxes off-shore earnings at a rate of 10.5%, partially offset with foreign tax credits. In connection with this new provision, the Company has adopted an accounting policy to treat this new tax as a current period cost. The four principal jurisdictions in which the Company manufactures are the U.S., Ireland, the U.K. and Singapore, where the statutory tax rates are 21%, 12.5%, 19% and 17%, respectively, as of September 29, 2018. The Company has a contractual tax rate of 0% on qualifying activities in Singapore through March 2021, based upon the achievement of certain contractual milestones, which the Company expects to continue to meet. The effect of applying the contractual tax rate rather than the statutory tax rate to income from qualifying activities in Singapore increased the Company’s net income for the nine months ended September 29, 2018 and September 30, 2017 by $21 million and $18 million, respectively, and increased the Company’s net income per diluted share by $0.26 and $0.23, respectively. The Company’s effective tax rate for the three months ended September 29, 2018 and September 30, 2017 was 16.7% and 11.5%, respectively. The Company’s effective tax rate for the nine months ended September 29, 2018 and September 30, 2017 was 15.6% and 10.1%, respectively. The increase in the effective tax rate of 5.2 percentage points and 5.5 percentage points for the three and nine months ended September 29, 2018, respectively, can be primarily attributed to the following:
| • |  | The impact of the change in foreign currency exchange rates on the earnings taxed in December 2017 under the toll charge of the 2017 Tax Act and other related matters, which increased our effective tax rate by 1.4 percentage points (or $2 million) and 1.3 percentage points (or $6 million) for the three and nine months ended September 29, 2018, respectively, as compared to the previous periods in 2017.
| • |  | The impact of the reduction in tax benefit related to stock-based compensation, which increased the effective tax rate by 1.6 percentage points (or $2 million) and 1.8 percentage points ($6 million) for the three and nine months ended September 29, 2018, respectively, as compared to the previous periods in 2017.
| • |  | The impact of the increase in income tax reserves for uncertain tax positions and settlement of audits in 2018 as compared with the release of income tax reserves in 2017, which resulted in an increase in the Company’s effective tax rate of .7 percentage points for both the three and nine months ended September 29, 2018. The 2018 increase in the tax reserve for uncertain tax positions and settlement of audits added $2 million of tax expense to 2018. During the same period during 2017, there was a $3 million release of reserves due to the lapsing of the statutes of limitation. This movement in income tax reserves is without regard to the change for U.S. Tax Reform items noted above.
| • |  | The most significant ongoing changes applicable to the Company under the 2017 Tax Act are the reduction in the U.S. federal income tax rate from 35% to 21% and the new GILTI provision described above. The impact of the GILTI provision is an increase of approximately 2.4 percentage points to the Company’s effective tax rates for both the three and nine months ended September 29, 2018. This detriment is significantly offset by the overall federal rate reduction, for no net impact in comparison to the same periods in the prior year.
| • |  | The remaining differences between the effective tax rates can primarily be attributed to differences in the proportionate amounts of pre-tax income recognized in jurisdictions with different effective tax rates.
The Company accounts for its uncertain tax return reporting positions in accordance with the accounting standards for income taxes, which require financial statement reporting of the expected future tax consequences of uncertain tax reporting positions on the presumption that all concerned tax authorities possess full knowledge of those tax reporting positions, as well as all of the pertinent facts and circumstances, but prohibit any discounting of unrecognized tax benefits associated with those reporting positions for the time value of money. The Company continues to classify interest and penalties related to unrecognized tax benefits as a component of the provision for income taxes. The following is a summary of the activity of the Company’s uncertain tax positions for the nine months ended September 29, 2018 and September 30, 2017 (in thousands):
|  | September 29, 2018 |  |  | September 30, 2017 |
Balance at the beginning of the period |  | $ | 5,843 |  |  | $ | 9,964 |
Net changes in uncertain tax positions |  |  | 19,097 |  |  |  | (2,953 | )
Balance at the end of the period |  | $ | 24,940 |  |  | $ | 7,011 |
As noted above, during the quarter and nine months ended September 29, 2018, the Company increased its income tax reserves for uncertain tax positions by $18 million related to the 2017 federal toll charge. With limited exceptions, the Company is no longer subject to tax audit examinations in significant jurisdictions for the years ended on or before December 31, 2013. However, carryforward tax attributes that were generated in years beginning on or before January 1, 2014 may still be adjusted upon examination by tax authorities if the attributes are utilized. The Company continuously monitors the lapsing of statutes of limitations on potential tax assessments for related changes in the measurement of unrecognized tax benefits, related net interest and penalties, and deferred tax assets and liabilities. As of September 29, 2018, the Company expects to record additional reductions in the measurement of its unrecognized tax benefits and related net interest and penalties of less than $1 million within the next twelve months due to potential tax audit settlements and the lapsing of statutes of limitations on potential tax assessments. The Company does not expect to record any other material reductions in the measurement of its unrecognized tax benefits within the next twelve months. The Company adopted new accounting guidance which eliminates the deferral of tax effects on intra-entity transfers other than inventory and requires an entity to recognize the income tax consequences when the transfer occurs. The Company adopted this standard as of January 1, 2018 with a $4 million charge to beginning retained earnings in the consolidated balance sheet.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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