Income Taxes

9 Months Ended

Sep. 28, 2019

A summary of the provision for income taxes and the corresponding effective tax rate for the three and nine months ended September 28, 2019 and September 29, 2018, is shown below (in millions, except effective tax rates):



	Three Months Ended						Nine Months Ended
	September 28, 2019			September 29, 2018			September 28, 2019			September 29, 2018
Provision for income taxes	$	33.5		$	57.6		$	149.9		$	233.0
Pretax income before equity in net income of affiliates	$	267.0		$	328.9		$	820.8		$	1,220.3
Effective tax rate	12.5		%	17.5		%	18.3		%	19.1		%

In the first nine months of 2019 and 2018, the provision for income taxes was primarily impacted by the level and mix of earnings among tax jurisdictions. In addition, the Company recognized tax benefits (expense) related to the significant, discrete items shown below (in millions):



	Nine Months Ended
	September 28, 2019			September 29, 2018
Restructuring charges and various other items	$	35.7		$	9.9
Valuation allowances on deferred tax assets of a foreign subsidiary	(10.4		)	36.4
Share-based compensation	3.1			10.8
Increase in foreign withholding tax on certain undistributed foreign earnings	—			(22.0		)
Change in tax status of certain affiliates	18.4			—
Tax rate change in foreign subsidiary	—			7.2
Research and development tax credits	28.6			—
Adjustment to 2017 provisional U.S. income tax expense	—			9.3
	$	75.4		$	51.6

In the third quarter of 2019, the Company completed a U.S. research and development ("R&D") tax credit study for the years 2013 to 2018. As a result of the completion of the study, the Company concluded that certain R&D tax credit carryforwards were more likely than not to be sustained upon examination and recognized a tax benefit of $28.6 million in the three and nine months ended September 28, 2019. In addition, in the nine months ended September 28, 2019, the Company recognized a gain of $4.0 million related to the deconsolidation of an affiliate (Note 7, "Investment in Affiliates"), for which no tax expense was

provided. In the nine months ended September 29, 2018, the Company recognized a gain of $10.0 million related to obtaining control of an affiliate, for which no tax expense was provided.

Excluding the items above, the effective tax rate for the first nine months of 2019 and 2018 approximated the U.S. federal statutory income tax rate of 21%, adjusted for income taxes on foreign earnings, losses and remittances, valuation allowances, tax credits, income tax incentives and other permanent items.

The Company’s current and future provision for income taxes is impacted by the initial recognition of and changes in valuation allowances in certain countries. The Company intends to maintain these allowances until it is more likely than not that the deferred tax assets will be realized. The Company’s future provision for income taxes will include no tax benefit with respect to losses incurred and, except for certain jurisdictions, no tax expense with respect to income generated in these countries until the respective valuation allowances are eliminated. Accordingly, income taxes are impacted by changes in valuation allowances and the mix of earnings among jurisdictions. The Company evaluates the realizability of its deferred tax assets on a quarterly basis. In completing this evaluation, the Company considers all available evidence in order to determine whether, based on the weight of the evidence, a valuation allowance for its deferred tax assets is necessary. Such evidence includes historical results, future reversals of existing taxable temporary differences and expectations for future taxable income (exclusive of the reversal of temporary differences and carryforwards), as well as the implementation of feasible and prudent tax planning strategies. If, based on the weight of the evidence, it is more likely than not that all or a portion of the Company’s deferred tax assets will not be realized, a valuation allowance is recorded. If operating results improve or decline on a continual basis in a particular jurisdiction, the Company’s decision regarding the need for a valuation allowance could change, resulting in either the initial recognition or reversal of a valuation allowance in that jurisdiction, which could have a significant impact on income tax expense in the period recognized and subsequent periods. In determining the provision for income taxes for financial statement purposes, the Company makes certain estimates and judgments, which affect its evaluation of the carrying value of its deferred tax assets, as well as its calculation of certain tax liabilities.

For further information related to the Company's income taxes, see Note 7, "Income Taxes," to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. For further information related to obtaining control of an affiliate, see Note 5, "Investments in Affiliates and Other Related Party Transactions," to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018.