XML 37 R16.htm IDEA: XBRL DOCUMENT

Income Taxes

6 Months Ended

Dec. 02, 2017

The company recognizes interest and penalties related to uncertain tax benefits through income tax expense in its Condensed Consolidated Statement of Comprehensive Income. Interest and penalties recognized in the company's Condensed Consolidated Statement of Comprehensive Income were negligible for the three and six months ended December 2, 2017 and December 3, 2016.

The company's recorded liability for potential interest and penalties related to uncertain tax benefits was:



(In millions)	December 2, 2017		June 3, 2017
Liability for interest and penalties	$	0.9	$	0.8
Liability for uncertain tax positions, current	3.0		2.8

The effective tax rates for the three and six months ended December 2, 2017 and December 3, 2016 were 30.5 percent and 32.0 percent, respectively. The company's United States federal statutory rate is 35 percent.

The decrease in the effective tax rate for the three months ended December 2, 2017 was a result of an increase in the mix of earnings in tax jurisdictions that had rates lower than the United States statutory rate.

The effective tax rates for the three months ended December 2, 2017 and December 3, 2016 were lower than the United States statutory rate due to the mix of earnings in taxing jurisdictions that had rates that were lower than the United States statutory rate along with the manufacturing deduction under the American Jobs Creation Act of 2004 (“AJCA”) and the research and development tax credit under the Protecting Americans from Tax Hikes ("PATH") Act of 2015.

The effective tax rates for the six months ended December 2, 2017 and December 3, 2016 were lower than the United States statutory rate due to the mix of earnings in taxing jurisdictions that had rates that were lower than the United States statutory rate along with the manufacturing deduction under the American Jobs Creation Act of 2004 (“AJCA”) and the research and development tax credit under the Protecting Americans from Tax Hikes ("PATH") Act of 2015.

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 twelve months as a result of the audits. Tax payments related to these audits, if any, are not expected to be material to the company's Condensed Consolidated Statements of Comprehensive Income.

For the majority of tax jurisdictions, the company is no longer subject to state, local, or non-United States income tax examinations by tax authorities for fiscal years before 2012.

As a result of the passage of the Federal Tax Cuts and Jobs Act (“TCJA”) on December 22, 2017, which was subsequent to the fiscal periods that ended on December 2, 2017, the company's United States statutory rate will be reduced from 35 percent to 21 percent effective January 1, 2018, which will result in a full year blended fiscal 2018 U.S. Federal statutory rate of approximately 29 percent. The impact of the lower statutory rate applied to the earnings before tax for the six-month period ended December 2, 2017 will be recorded as a discrete item in the company’s income tax expense for the three months ending March 3, 2018. Also recorded in the same three-month period will be a remeasurement of the deferred tax assets and liabilities to reflect the anticipated rate at which the deferred items will be realized. The TCJA introduces a new participation exemption system of taxation on foreign earnings. As part of the transition towards this system, in the three-month period ended March 3, 2018, the company anticipates recording a U.S. tax liability on certain undistributed foreign earnings. The analysis of the actual impact of these changes is not yet complete and the company intends to determine and disclose the estimated impact as part of its third quarter fiscal 2018 results.