Income Taxes

On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (“U.S. Tax Reform”) which incorporates significant changes to U.S. corporate income tax laws. This included a reduction in the statutory federal corporate income tax rate from 35% to 21%, which resulted in a blended statutory federal rate of 30.5% for the fiscal year ended April 28, 2018, an exemption for dividends received from certain foreign subsidiaries, a one-time repatriation tax on deemed repatriated earnings from foreign subsidiaries, immediate expensing of certain depreciable tangible assets, and limiting the deductibility of certain executive compensation.

Under ASC Topic 740 ("ASC 740"), a company is generally required to recognize the effect of changes in tax laws in its financial statements in the period in which the legislation is enacted. The U.S. Tax Reform legislation was signed into law on December 22, 2017. As such, the Company included such results into its financial statements for the year ending April 28, 2018.

The SEC staff issued Staff Accounting Bulletin ("SAB") 118 to provide certain guidance in determining the accounting for income tax effects of the legislation in the accounting period of enactment as well as provide a one-year measurement period to finalize the effects associated with U.S. Tax Reform. The Company recognized an estimated net income tax charge with respect to U.S. Tax Reform of $53.7 million. This net income tax charge includes $48.5 million associated with the one-time repatriation tax from the earnings of the Company’s foreign subsidiaries, which is payable over 8 years, and a re-measurement of the Company’s net U.S. deferred tax assets of $5.2 million.

Due to the timing and complexity of the various technical provisions provided for under U.S. Tax Reform, the financial statement impacts recorded in fiscal 2018 relating to U.S. Tax Reform are not deemed to be complete but rather are deemed to be reasonable, provisional estimates based upon the current available information. The Company did make a provisional adjustment of $3.1 million to reduce the overall impact of U.S. Tax Reform to $53.7 million due to actual amounts as of April 28, 2018 that were previously estimated. This provisional adjustment reduced the effective tax rate for fiscal 2018 by 2.5%. As such, the Company will update and finalize the accounting for the tax effect of the enactment of U.S. Tax Reform in future quarters in accordance with the guidance as outlined in SAB 118, as deemed necessary.

U.S. Tax Reform includes a new global intangible low-taxed income (“GILTI”) provision which requires the Company to include foreign subsidiary earnings in its U.S. tax return starting in fiscal year 2019. 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 differences expected to reverse in future years or provide for the tax expense in the year the tax is incurred. The Company has elected to recognize the tax on GILTI as a period expense in the period the tax is incurred and therefore has not included any deferred tax impacts of GILTI in its consolidated financial statements for its fiscal year ending 2018.

Significant components of our deferred tax assets and liabilities were as follows:



	April 28, 2018			April 29, 2017
Deferred Tax Liabilities:
Accelerated Tax Depreciation	$	6.3		$	2.0
Accelerated Book Amortization	11.4			—
Foreign Tax Withheld	4.8			4.2
Deferred Income	0.2			0.4
Deferred Tax Liabilities, Gross	22.7			6.6
Deferred Tax Assets:
Deferred Compensation and Stock Award Amortization	7.5			10.1
Inventory Valuation Differences	1.8			2.9
Property Valuation Differences	2.0			1.9
Accelerated Book Amortization	—			7.2
Environmental Reserves	0.2			0.5
Bad Debt Reserves	0.1			0.1
Vacation Accruals	1.0			1.0
Foreign Investment Tax Credit	29.3			17.9
Net Operating Loss Carryovers	5.8			4.7
Other Accruals	1.5			2.6
Deferred Tax Assets, Gross	49.2			48.9
Less Valuation Allowance	2.5			1.9
Deferred Tax Assets, Net of Valuation Allowance	46.7			47.0
Net Deferred Tax Assets	$	24.0		$	40.4
Balance Sheet Classification:
Non-current Asset	42.3			40.4
Non-current Liability	(18.3		)	—
Net Deferred Tax Assets	$	24.0		$	40.4

The Company evaluated all available positive and negative evidence, including past operating results and the projection of future taxable income and determined it is more likely than not that expected future taxable income will be sufficient to utilize substantially all of our state net deferred tax assets. We will continue to maintain a valuation allowance of $2.5 million related to certain state, federal, and foreign net operating loss carryovers and other credits until determined that these deferred tax assets are more likely than not realizable.

At April 28, 2018, we had available $2.1 million of federal, $78.2 million of state and $0.3 million of foreign net operating loss carryforwards (having a tax benefit of $0.4 million, $5.2 million and $0.1 million, respectively). If unused, the U.S. federal net operating loss carryforwards will expire in the years 2019 through 2031. The state net operating loss carryforwards will expire in the years 2019 through 2037.

The tax laws of Malta provide for investment tax credits of 30.0% of certain qualified expenditures. Total unused credits are $29.3 million as of April 28, 2018, of which $27.6 million can be carried forward indefinitely and $1.7 million expire in 2020. We record investment tax credits using the "flow through" method.

Components of income before income taxes are as follows:



	Fiscal Year Ended
	April 28, 2018		April 29, 2017		April 30, 2016
Domestic Source	$	11.4	$	21.6	$	25.3
Foreign Source	112.4		94.3		85.6
Income before Income Tax	$	123.8	$	115.9	$	110.9

Income taxes consisted of the following:



	Fiscal Year Ended
	April 28, 2018			April 29, 2017			April 30, 2016
Current
Federal	$	46.5		$	9.2		$	2.8
Foreign	18.8			17.0			14.7
State	0.3			0.7			0.6
Subtotal	65.6			26.9			18.1

Deferred
Federal and State	11.6			(1.2		)	5.5
Foreign	(10.6		)	(2.7		)	2.7
Subtotal	1.0			(3.9		)	8.2
Total Income Tax Expense	$	66.6		$	23.0		$	26.3

A reconciliation of the consolidated provisions for income taxes from continuing operations to amounts determined by applying the prevailing statutory federal income tax rate to pre-tax earnings is as follows:



	Fiscal Year Ended
	April 28, 2018					April 29, 2017					April 30, 2016
Income Tax at Statutory Rate	$	37.7		30.5	%	$	40.5		35.0	%	$	38.9		35.0	%
Effect of:
State Income Taxes, Net of Federal Benefit	0.1			0.1	%	0.9			0.8	%	0.4			0.4	%
U.S. Tax Reform Repatriation	48.5			39.2	%	—			—	%	—			—	%
Foreign Operations with Lower Statutory Rates	(15.3		)	(12.4	)%	(14.5		)	(12.5	)%	(11.9		)	(10.7	)%
Foreign Investment Tax Credit	(9.8		)	(7.9	)%	(4.7		)	(4.1	)%	(2.1		)	(1.9	)%
Change in Tax Reserve	0.1			—	%	0.1			0.1	%	0.1			0.1	%
Change in Valuation Allowance	0.4			0.3	%	0.3			0.3	%	0.1			0.1	%
Tax Rate Change, Foreign	(1.5		)	(1.2	)%	—			—	%	—			—	%
U.S. Tax Reform Re-measurements	5.2			4.2	%	—			—	%	—			—	%
Other, Net	1.2			1.0	%	0.4			0.3	%	0.8			0.8	%
Income Tax Provision (Benefit)	$	66.6		53.8	%	$	23.0		19.9	%	$	26.3		23.8	%

We paid income taxes of $20.2 million in fiscal 2018, $19.0 million in fiscal 2017 and $10.0 million in fiscal 2016. No U.S. provision has been made for income taxes on undistributed earnings on foreign operations other than the one-time repatriation tax. Other than specifically identified amounts, the remaining foreign earnings are expected to be indefinitely reinvested within our foreign operations. If the undistributed net income of $306.6 million were distributed as dividends, the Company would not be subject to material additional U.S. income tax expense on these future distributions. In certain jurisdictions, these distributions may be subject to foreign tax withholdings. However, it is not practicable to estimate the amount of foreign tax withholdings at this time.

As of April 28, 2018, our gross unrecognized tax benefits totaled $1.4 million, which would favorably affect the effective tax rate if resolved in our favor.

The following table presents a reconciliation of the beginning and ending amounts of unrecognized tax benefits:



Balance as of April 29, 2017	$	1.3
Increases for Positions Related to the Prior Years	—
Increases for Positions Related to the Current Year	0.1
Decreases for Positions Related to the Prior Years	—
Lapsing of Statutes of Limitations	—
Balance as of April 28, 2018	$	1.4

The U.S. federal statute of limitations remains open for fiscal years ended on or after 2015 and for state tax purposes on or after fiscal year 2013. Tax authorities may have the ability to review and adjust net operating losses or tax credits that were generated prior to these fiscal years. In the major foreign jurisdictions, fiscal year 2012 and subsequent periods remain open and subject to examination by taxing authorities.

The continuing practice of the Company is to recognize interest and penalties related to income tax matters in the provision for income taxes. We had $0.1 million accrued for interest and no accrual for penalties at April 28, 2018.