Income Taxes

6 Months Ended

Dec. 01, 2018

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 1, 2018 and December 2, 2017.

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



(In millions)	December 1, 2018		June 2, 2018
Liability for interest and penalties	$	0.9	$	1.0

The components of the Company's unrecognized tax benefits are as follows:



(In millions)
Balance at June 2, 2018	$	3.2
Increases related to current year income tax positions	0.2
Decreases related to settlements	(1.1		)
Balance at December 1, 2018	$	2.3

The balance of unrecognized tax benefits would impact the effective tax rate if recognized.

On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was signed into law in the United States. The effects of the Act included the reduction of the federal corporate income tax rate from 35% to 21% and a new participation exemption system of taxation on foreign earnings, among other provisions.

In accordance with SAB 118, for the three month period ended December 1, 2018, the Company has not completed its accounting for all the effects of the Act, as the U.S. Treasury Department and the Internal Revenue Service continue to provide additional guidance. As a result of analyzing additional guidance, the Company has updated its provisional estimate related to foreign tax credits and recorded a discrete increase

to income tax expense of $0.9 million. Additionally, the Company updated its provisional estimate for the one-time U.S. tax liability on certain undistributed foreign earnings and recorded a discrete decrease to income tax expense of $0.1 million. The Company will continue to refine its estimates as additional analysis is completed and further guidance is issued.

Besides the one-time U.S. tax liability on undistributed foreign earnings as required by the Act, no other provision was made for income taxes that may result from future remittances of undistributed earnings of foreign subsidiaries that are determined to be indefinitely reinvested. Determination of the total amount of unrecognized deferred income tax on undistributed earnings of foreign subsidiaries is not practicable.

For tax years beginning after December 31, 2017, the Act subjects a U.S. shareholder to tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred. The Company has not yet made its accounting policy election regarding GILTI deferred taxes.

In determining the provision for income taxes for the three and six month periods ended December 1, 2018, the Company used an estimated annual effective tax rate which was based on expected annual income and statutory tax rates across the various jurisdictions in which it operates, which included effects of the Act. The effective tax rates were 22.6% and 30.5%, respectively, for the three month periods ended December 1, 2018 and December 2, 2017. The effective tax rates were 21.4% and 30.5%, respectively, for the six month periods ended December 1, 2018 and December 2, 2017. The year over year decrease in the effective tax rate for the three and six months ended December 1, 2018 was the result of the Act. The effective tax rate for the three and six months ended December 1, 2018 is higher than the United States federal statutory rate due to the mix of earnings in taxing jurisdictions that had rates that were higher than the United States federal statutory rate. The effective tax rate for the three and six months ended December 2, 2017 is lower than the United States federal statutory rate due to the mix of earnings in taxing jurisdictions that had rates that were lower than the United States federal statutory rate, along with 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 because 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.