Income Taxes

12 Months Ended

Sep. 28, 2019

The reconciliation of the provision for income taxes to the amount computed by applying the U.S. federal statutory tax rate to earnings before income taxes is as follows:



	2019			2018			2017
Earnings before income taxes:
Domestic	$	143,114		$	137,247		$	77,007
Foreign	90,644			46,590			104,704
Total	$	233,758		$	183,837		$	181,711
Federal statutory income tax rate	21.0		%	24.5		%	35.0		%
Increase (decrease) in income taxes resulting from:
Transition tax on foreign earnings	0.3		%	16.8		%	—		%
Revaluation of deferred taxes	(0.2		)%	(6.0		)%	—		%
Withholding taxes	1.0		%	4.0		%	—		%
Reversal of indefinite reinvestment assertion	0.6		%	5.6		%	—		%
R&D and foreign tax credits	(2.1		)%	(4.2		)%	(3.8		)%
Divestiture impacts	—		%	—		%	(3.2		)%
Foreign tax rates	2.2		%	(0.7		)%	(2.4		)%
Equity-based compensation	(0.6		)%	(0.7		)%	(1.2		)%
Export and manufacturing incentives	—		%	(0.3		)%	(0.9		)%
Change in valuation allowance for deferred taxes	(0.7		)%	5.7		%	(0.4		)%
State taxes, net of federal benefit	1.5		%	1.9		%	0.4		%
Other	0.1		%	0.8		%	(0.8		)%
Effective income tax rate	23.1		%	47.4		%	22.7		%

The Tax Cuts and Jobs Act (the "Act") of 2017 was enacted on December 22, 2017. It reduced the U.S. federal corporate tax rate from 35% to 21%, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and created new taxes on certain foreign sourced earnings. As of December 29, 2018, we have completed the accounting for the tax effects of enactment of the one-time transition tax liability. The Act also includes a Global Intangible Low-Tax Income (GILTI) provision that imposes U.S. tax on certain foreign subsidiary income in the year it is earned. This provision became effective beginning in 2019. Our accounting policy is to treat tax on GILTI as a current period cost included in tax expenses the year incurred. As such, we will not be measuring the impact of the GILTI in our determination of deferred taxes.

During 2018, we recorded a $30,795 one-time transition tax on undistributed foreign earnings deemed to be repatriated and a tax charge of $10,383 as an additional provision for taxes on undistributed earnings not considered to be permanently reinvested. These charges were partially offset by a $10,946 benefit due to the remeasurement of deferred tax assets and liabilities arising from a lower U.S. corporate tax rate. In 2019, we recorded $3,325 of GILTI tax and received a benefit of $2,495 related to the Foreign-Derived Intangible Income deduction. In addition, we recorded $1,317 of expense as an accrual for taxes on undistributed earnings not considered permanently reinvested.

During 2018, we repatriated $235,263 of available un-remitted earnings from various foreign subsidiaries that were previously taxed under the Act. During 2019, we repatriated 103,227 of available un-remitted earnings from various foreign subsidiaries that were previously taxed under the Act. Due to the Act, we are no longer indefinitely reinvesting un-remitted earnings effective December 30, 2017 and therefore we have recorded a liability for withholding taxes related to the remaining accumulated un-remitted earnings generated by the foreign subsidiaries in the current year. We continue to be permanently invested in outside basis differences other than the un-remitted earnings as we have no plans to liquidate or sell those foreign subsidiaries.

The components of income taxes are as follows:



	2019			2018		2017
Current:
Federal	$	24,908		$	20,376	$	6,259
Foreign	29,460			35,515		24,162
State	4,240			705		122
Total current	58,608			56,596		30,543
Deferred:
Federal	(5,666		)	23,229		11,624
Foreign	1,413			3,354		(1,986		)
State	(345		)	4,030		1,120
Total deferred	(4,598		)	30,613		10,758
Income taxes	$	54,010		$	87,209	$	41,301

Realization of deferred tax assets is dependent, in part, upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers projected future taxable income and tax planning strategies in making its assessment of the recoverability of deferred tax assets.

The tax effects of temporary differences that generated deferred tax assets and liabilities are as follows:



	September 28, 2019			September 29, 2018
Deferred tax assets:
Benefit accruals	$	115,683		$	125,566
Inventory reserves	26,364			27,678
Tax benefit carryforwards	14,196			16,211
Contract reserves not currently deductible	15,382			11,028
Other accrued expenses	4,918			6,670
Total gross deferred tax assets	176,543			187,153
Less valuation allowance	(13,137		)	(15,181		)
Total net deferred tax assets	$	163,406		$	171,972
Deferred tax liabilities:
Differences in bases and depreciation of property, plant and equipment	$	121,353		$	125,132
Pension	62,589			75,989
Total gross deferred tax liabilities	183,942			201,121
Net deferred tax assets (liabilities)	$	(20,536	)	$	(29,149	)

Deferred tax assets and liabilities are reported in separate captions on the consolidated balance sheets.

At September 28, 2019, foreign tax benefit carryforwards total $29,250. Domestic benefit carryforwards representing state tax losses total $13,117. We also have $3,925 of state tax credit carryforwards. Some of these tax benefit carryforwards do not expire and can be used to reduce current taxes otherwise due on future earnings. The change in the valuation allowance relates to tax benefit carryforwards reflecting recent and projected financial performance, tax planning strategies and statutory tax carryforward periods.

We have no material unrecognized tax benefits which, if ultimately recognized, will reduce our annual effective tax rate.

We are subject to income taxes in the U.S. and in various states and foreign jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require the application of significant judgment. With few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities in significant jurisdictions for years before 2016. The statute of limitations in several jurisdictions will expire in the next twelve months and we will have no unrecognized tax benefits recognized if the statute of limitations expires without the relevant taxing authority examining the applicable returns.

We continue to record additional interest and penalties related to historical unrecognized tax benefits in income tax expense. We had accrued interest and penalties of $843 and $710 at September 28, 2019 and September 29, 2018, respectively. We expensed interest of $134 and $143 for 2019 and 2018, respectively.