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INCOME TAXES | 6 Months Ended
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Jun. 27, 2015
INCOME TAXES |
INCOME TAXES | (14)INCOME TAXES Uncertain Tax Benefits As of June 27, 2015, we had gross unrecognized tax benefits of $67.3 (net unrecognized tax benefits of $37.8), of which $37.3, if recognized, would impact our effective tax rate from continuing operations. We classify interest and penalties related to unrecognized tax benefits as a component of our income tax provision. As of June 27, 2015, gross accrued interest totaled $6.9 (net accrued interest of $5.7). As of June 27, 2015, we had no accrual for penalties included in our unrecognized tax benefits. Based on the outcome of certain examinations or as a result of the expiration of statutes of limitations for certain jurisdictions, we believe that within the next 12 months it is reasonably possible that our previously unrecognized tax benefits could decrease by approximately $10.0 to $15.0. The previously unrecognized tax benefits relate to a variety of tax matters relating to deemed income inclusions, transfer pricing and various state matters. Other Tax Matters For the three months ended June 27, 2015, we recorded an income tax provision of $10.4 on $47.3 of pre-tax income from continuing operations, resulting in an effective rate of 22.0%. This compares to an income tax provision for the three months ended June 28, 2014 of $18.6 on $75.3 of pre-tax income from continuing operations, resulting in an effective rate of 24.7%. The most significant items impacting the effective tax rate for the second quarter of 2015 were tax benefits of (i) $3.9 related to net reductions in valuation allowances recorded against certain foreign deferred income tax assets, including $2.9 for which the benefit was realized due to legal entity reorganization actions that were undertaken in connection with the planned spin-off transaction, and (ii) $2.0 related to foreign exchange losses recognized for tax purposes with respect to a foreign branch, partially offset by the effects of approximately $12.0 of pre-tax losses generated during the period for which no tax benefit was recognized, as future realization of any such tax benefit is considered unlikely. The most significant items impacting the effective tax rate for the second quarter of 2014 were tax benefits of (i) $9.9 related to various audit settlements and statute expirations and (ii) $6.7 related to a loss on an investment in a foreign subsidiary, partially offset by tax charges of $10.8 resulting from net increases in valuation allowances recorded against certain foreign deferred income tax assets. For the six months ended June 27, 2015, we recorded an income tax provision of $19.9 on $47.2 of pre-tax income from continuing operations, resulting in an effective tax rate of 42.2%. This compares to an income tax provision for the six months ended June 28, 2014 of $178.6 on $532.0 of pre-tax income from continuing operations, resulting in an effective tax rate of 33.6%. The most significant items impacting the effective tax rate for the first six months of 2015 were (i) $5.1 of taxes incurred during the first quarter of 2015 related to the planned spin-off transaction, including $4.9 of foreign income taxes related to reorganization actions undertaken to facilitate the separation, (ii) the effects of approximately $26.0 of pre-tax losses generated during the period for which no tax benefit was recognized, as future realization of any such tax benefit is considered unlikely, partially offset by the tax benefits realized in the second quarter of 2015 discussed above. The most significant items impacting the effective tax rate for the first six months of 2014 were the U.S. income taxes provided in connection with the $491.2 gain recorded during the first quarter of 2014 on the sale of our interest in EGS, as well as those items discussed above that were recorded during the second quarter of 2014. We perform reviews of our income tax positions on a continuous basis and accrue for potential uncertain positions when we determine that an uncertain position meets the criteria of the Income Taxes Topic of the Codification. Accruals for these uncertain tax positions are recorded in “Income taxes payable” and “Deferred and other income taxes” in the accompanying condensed consolidated balance sheets based on the expectation as to the timing of when the matters will be resolved. As events change and resolutions occur, these accruals are adjusted, such as in the case of audit settlements with taxing authorities. We have filed our federal income tax returns for the 2012 and 2013 tax years and those returns are subject to examination. The IRS is currently examining the 2012 tax return year. With regard to all open tax years, we believe any contingencies are adequately provided for. State income tax returns generally are subject to examination for a period of three to five years after filing the respective tax returns. The impact on such tax returns of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states. We have various state income tax returns in the process of examination or administrative appeal. We believe any uncertain tax positions related to these examinations have been adequately provided for. We have various foreign income tax returns under examination. The most significant of these are in Denmark for the 2006, 2007, and 2010 tax years and in South Africa for the 2009 tax year. We believe that any uncertain tax positions related to these examinations have been adequately provided for. An unfavorable resolution of one or more of the above matters could have a material adverse effect on our results of operations or cash flows in the quarter and year in which an adjustment is recorded or the tax is due or paid. As audits and examinations are still in process or we have not yet reached the final stages of the appeals process, the timing of the ultimate resolution and any payments that may be required for the above matters cannot be determined at this time.

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