Income Taxes

9 Months Ended

Mar. 02, 2019

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 nine months ended March 2, 2019 and March 3, 2018.

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



(In millions)	March 2, 2019		June 2, 2018
Liability for interest and penalties	$	1.0	$	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	0.3
Decreases related to settlements	(1.1		)
Balance at March 2, 2019	$	2.4

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 Staff Accounting Bulletin 118, for the year ended June 2, 2018, the Company recorded a provisional tax benefit of $3.1 million from the impact of the Act. Subsequently, as the U.S. Treasury Department issued additional guidance, the Company recorded adjustments to the provisional tax benefit. During the third quarter of fiscal 2019, the Company completed its accounting for all the effects of the Act. Through the three month and nine month periods ended March 2, 2019, the Company recorded adjustments to the provisional amount to increase the income tax benefit from the Act by $1.8 million and $1.0 million, respectively.

The U.S. Treasury Department and the Internal Revenue Service is expected to continue issuing additional guidance related to the Act, which could have a material impact to the provision for income taxes. If applicable, the Company would recognize any adjustments in the provision for income taxes in the period additional 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 will account for tax expense related to GILTI in the year the tax is incurred.

In determining the provision for income taxes for the three and nine month periods ended March 2, 2019, 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 16.0% and 19.0%, respectively, for the three month periods ended March 2, 2019 and March 3, 2018. The effective tax rates were 19.6% and 27.3%, respectively, for the nine month periods ended March 2, 2019 and March 3, 2018. The year over year decrease in the effective tax rate for the three and nine months ended March 2, 2019 was the result of the Act. The effective tax rate for the three and nine months ended March 2, 2019 and March 3, 2018 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.