Income Taxes

12 Months Ended

Dec. 28, 2019

INCOME TAXES

The geographic components of earnings (loss) before income taxes are as follows:



	Fiscal Year
(In millions)	2019		2018		2017
United States	$	79.3	$	159.2	$	(78.2	)
Foreign	66.6		68.2		67.6
Earnings (loss) before income taxes	$	145.9	$	227.4	$	(10.6	)

The provisions for income tax expense (benefit) consist of the following:



	Fiscal Year
(In millions)	2019			2018		2017
Current expense:
Federal	$	10.6		$	6.7	$	48.1
State	0.5			2.4		1.9
Foreign	12.5			10.9		14.0
Deferred expense (credit):
Federal	(5.8		)	2.1		(72.0		)
State	(2.0		)	3.3		(0.2		)
Foreign	1.2			1.7		(1.7		)
Income tax provision	$	17.0		$	27.1	$	(9.9	)

A reconciliation of the Company’s total income tax expense and the amount computed by applying the statutory federal income tax rate to earnings before income taxes is as follows:



	Fiscal Year
(In millions)	2019			2018			2017
Income taxes at U.S. statutory rates of 21%, 21% and 35%	$	30.6		$	47.7		$	(3.7	)
State income taxes, net of federal income tax	0.5			2.8			(4.2		)
(Nontaxable earnings) non-deductible losses of foreign affiliates:
Cayman Islands	—			—			(3.5		)
Other	(0.1		)	(0.1		)	(0.3		)
Foreign earnings taxed at rates different from the U.S. statutory rate:
Hong Kong	(8.5		)	(10.8		)	(17.3		)
Other	2.8			(3.1		)	3.5
Adjustments for uncertain tax positions	(1.0		)	(1.4		)	0.4
Change in valuation allowance	(0.2		)	3.3			3.0
Change in state tax rates	(1.5		)	1.9			0.1
Transition tax due to TCJA	—			(0.1		)	58.1
Remeasurement of U.S. deferred taxes due to TCJA	—			—			(52.5		)
Global Intangible Low Tax Income tax	2.1			3.7			—
Foreign Derived Intangible Income tax benefit	(4.4		)	(6.8		)	—
Non-deductible executive compensation	2.0			0.9			0.7
Permanent adjustments related to employee share based compensation	(5.1		)	(3.8		)	(1.9		)
Deferred tax on future cash dividends	0.6			(0.9		)	3.0
Other Permanent adjustments and non-deductible expenses	(0.6		)	(6.7		)	0.6
Other	(0.2		)	0.5			4.1
Income tax provision	$	17.0		$	27.1		$	(9.9	)

Significant components of the Company’s deferred income tax assets and liabilities are as follows:



(In millions)	December 28, 2019			December 29, 2018
Deferred income tax assets:
Accounts receivable and inventory valuation allowances	$	5.7		$	4.9
Deferred compensation accruals	4.0			6.9
Accrued pension expense	25.3			21.6
Stock-based compensation	14.5			16.9
Net operating loss and foreign tax credit carryforwards	17.6			19.2
Book over tax depreciation and amortization	0.5			0.8
Tenant lease expenses	3.6			4.1
Environmental reserve	15.4			5.0
Other	5.1			5.8
Total gross deferred income tax assets	91.7			85.2
Less valuation allowance	(17.6		)	(17.8		)
Net deferred income tax assets	74.1			67.4
Deferred income tax liabilities:
Intangible assets	(157.5		)	(157.3		)
Tax over book depreciation and amortization	(8.6		)	(8.3		)
Other	(4.1		)	(6.6		)
Total deferred income tax liabilities	(170.2		)	(172.2		)
Net deferred income tax liabilities	$	(96.1	)	$	(104.8	)

The valuation allowance for deferred income tax assets as of December 28, 2019 and December 29, 2018 was $17.6 million and $17.8 million, respectively. The net decrease in the total valuation allowance during fiscal 2019 was $0.2 million. The valuation allowance for both years is primarily related to U.S. state and local net operating loss carryforwards as well as a valuation allowance against state deferred tax assets for certain U.S. legal entities, foreign net operating loss carryforwards and tax credit carryforwards in foreign jurisdictions. The ultimate realization of the deferred tax assets depends on the generation of future taxable income in foreign jurisdictions as well as state and local tax jurisdictions. The current year change in the valuation allowance results in a decrease against the state deferred tax assets of $0.5 million, an increase related to state net operating loss carryforward of $1.3 million, and a net decrease relating to the foreign net operating losses and foreign tax credits and other deferred tax assets of $1.0 million.

At December 28, 2019, the Company had foreign net operating loss carryforwards of $27.3 million, which have expirations ranging from 2020 to an unlimited term during which they are available to offset future foreign taxable income. The Company had U.S. state net operating loss carryforwards and Internal Revenue Code section 163(j) interest expense carryforwards of $161.4 million and $10.4 million respectively, which have expirations ranging from 2022 to an unlimited term during which they are available to offset future state taxable income. The Company also had tax credit carryforwards in foreign jurisdictions of $2.9 million, which are available for an unlimited carryforward period to offset future foreign taxes.

The following table summarizes the activity related to the Company’s unrecognized tax benefits:



	Fiscal Year
(In millions)	2019			2018
Unrecognized tax benefits at beginning of the year	$	7.9		$	9.3
Increases related to current year tax positions	1.6			0.8
Decreases related to prior year positions	(1.4		)	(2.0		)
Decreases relating to settlements with taxing authorities	(1.2		)	—
Decrease due to lapse of statute	—			(0.2		)
Unrecognized tax benefits at end of the year	$	6.9		$	7.9

The portion of the unrecognized tax benefits that, if recognized currently, would reduce the annual effective tax rate was $6.5 million and $7.1 million as of December 28, 2019 and December 29, 2018, respectively. The Company recognizes interest and penalties related to unrecognized tax benefits through interest expense and income tax expense, respectively. Interest accrued related to unrecognized tax benefits was $1.5 million and $2.4 million as of December 28, 2019 and December 29, 2018, respectively.

The Company is subject to periodic audits by domestic and foreign tax authorities. Currently, the Company is undergoing routine periodic audits in both domestic and foreign tax jurisdictions. It is reasonably possible that the amounts of unrecognized tax benefits could change in the next 12 months as a result of the audits. However, any payment of tax is not expected to be material to the consolidated financial statements. For the majority of tax jurisdictions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2015.

The Company intends to repatriate cash held in foreign jurisdictions and as such has recorded a deferred tax liability related to additional state taxes and foreign withholding taxes on the future dividends received in the U.S. from the foreign subsidiaries of $1.2 million and $0.6 million for fiscal years 2019 and 2018, respectively. The Company intends to permanently reinvest all non-cash undistributed earnings outside of the U.S. and has, therefore, not established a deferred tax liability on the amount of non-cash foreign undistributed earnings of $272.1 million at December 28, 2019. However, if these non-cash undistributed earnings were repatriated, the Company would be required to accrue and pay applicable U.S. taxes and withholding taxes payable to various countries. It is not practicable to estimate the amount of the deferred tax liability associated with these non-cash unremitted earnings due to the complexity of the hypothetical calculation.