Income Taxes

Income Tax Provision

Details of the Company’s income tax provision are as follows:



	Fiscal Year Ended
(Dollars in Millions)	April 27, 2019			April 28, 2018			April 29, 2017
Income (Loss) before Income Taxes:
Domestic Source	$	(0.6	)	$	11.4		$	21.6
Foreign Source	104.2			112.4			94.3
Income before Income Taxes	$	103.6		$	123.8		$	115.9

Current Tax Provision (Benefit):
U.S. (Federal and State)	$	(5.7	)	$	46.8		$	9.9
Foreign	21.5			18.8			17.0
Subtotal	15.8			65.6			26.9

Deferred Tax Provision (Benefit):
U.S. (Federal and State)	2.5			11.6			(1.2		)
Foreign	(6.3		)	(10.6		)	(2.7		)
Subtotal	(3.8		)	1.0			(3.9		)
Total Income Tax Expense	$	12.0		$	66.6		$	23.0

A reconciliation of the income tax expense to the prevailing statutory federal income tax rate (21.0% for 2019, 30.5% for 2018 and 35.0% for 2017) to pre-tax earnings is as follows:



	Fiscal Year Ended
(Dollars in Millions)	April 27, 2019			April 28, 2018			April 29, 2017
Income Tax at Statutory Rate	$	21.8		$	37.7		$	40.5
Effect of:
State Income Taxes, Net of Federal Benefit	(0.8		)	0.1			0.9
Dividends	1.8			—			—
U.S. Tax Reform Transition Tax	(4.8		)	48.5			—
Foreign Operations with Lower Statutory Rates	(9.6		)	(15.3		)	(14.5		)
Current Taxation of Foreign Income	3.4			—			—
Foreign Investment Tax Credit	(2.0		)	(9.8		)	(4.7		)
Change in Tax Reserve	(0.1		)	0.1			0.1
Change in Valuation Allowance	—			0.4			0.3
Tax Rate Change, Foreign	—			(1.5		)	—
U.S. Tax Reform Re-measurements	—			5.2			—
Other, Net	2.3			1.2			0.4
Income Tax Expense	$	12.0		$	66.6		$	23.0
Effective Income Tax Rate	11.6		%	53.8		%	19.9		%

On December 22, 2017, the U.S. enacted U.S. Tax Reform making significant changes to U.S. corporate income tax laws. This included a reduction in the statutory federal corporate income tax rate from 35.0% to 21.0%, 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.

The Company’s effective tax rate is primarily affected by the amount of income earned in the jurisdictions in which the Company operates, the amount of tax credits earned, and the impact of U.S. Tax Reform. The Company had a favorable impact from operations in foreign countries with tax rates lower than the U.S. statutory tax rate. The Company earned $2.0 million in investment tax credits primarily related to qualified expenditures in Malta. This was offset by U.S. tax of $3.4 million incurred on its foreign subsidiaries’ earnings under the new Global Intangible Low Tax Income regime.

In addition, in fiscal 2019, the accounting for U.S. Tax Reform was finalized and the Company recorded a tax benefit of $4.8 million as an adjustment to the provisional amount recorded in fiscal 2018. This adjustment under SAB 118 primarily consists of changes in interpretations and assumptions the Company made, additional regulatory guidance that was issued, and actions the Company took as a result of U.S. Tax Reform.

In fiscal 2018, the Company had a favorable impact from earnings in lower taxes jurisdictions. In addition, the Company recorded an unfavorable provisional estimate on the effects of tax law changes in the U.S. due to U.S. Tax Reform of $53.7 million. This was partially offset by a tax law change and recognition of additional foreign investment tax credits.

In fiscal 2017, the Company had a favorable impact from earnings in lower taxes jurisdictions. In addition, the Company had a favorable adjustment from the recognition of foreign investment tax credits.

Deferred Income Taxes and Valuation Allowances

Significant components of the Company's deferred income tax assets and liabilities were as follows:



(Dollars in Millions)	April 27, 2019			April 28, 2018
Deferred Tax Liabilities:
Depreciation	$	9.0		$	6.3
Amortization	43.9			11.4
Foreign Tax Withheld	2.0			4.8
Deferred Income	0.1			0.2
Deferred Tax Liabilities, Gross	55.0			22.7
Deferred Tax Assets:
Deferred Compensation and Stock Award Amortization	8.6			7.5
Inventory Valuation Differences	1.9			1.8
Property Valuation Differences	1.6			2.0
Environmental Reserves	0.3			0.2
Bad Debt Reserves	0.1			0.1
Vacation Accruals	0.4			1.0
Foreign Investment Tax Credit	28.2			29.3
Net Operating Loss Carryovers	13.8			5.8
Foreign Tax Credits	1.1			—
Other Accruals	3.2			1.5
Deferred Tax Assets, Gross	59.2			49.2
Less Valuation Allowance	6.3			2.5
Deferred Tax Assets, Net of Valuation Allowance	52.9			46.7
Net Deferred Tax Assets (Liabilities)	$	(2.1	)	$	24.0
Balance Sheet Classification:
Non-current Asset	34.3			42.3
Non-current Liability	(36.4		)	(18.3		)
Net Deferred Tax Assets (Liabilities)	$	(2.1	)	$	24.0

The Company recorded a net deferred tax liability for U.S. and foreign income taxes of $2.1 million as of April 27, 2019 and a deferred tax asset of $24.0 million as of April 28, 2018. In assessing the realizability of the deferred tax assets, the Company considers whether it is more likely than not that some portion or the entire deferred tax asset will be realized. Ultimately, the realization of the deferred tax asset is dependent upon the generation of sufficient earnings in future periods in which these temporary items can be utilized. In that regard, the Company has a valuation allowance of $6.3 million as of April 27, 2019, 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.

In fiscal 2019, the Company completed a stock acquisition of Grakon, a U.S. multinational, which increased the overall amount of deferred tax assets and liabilities. This included an increase in the deferred tax liabilities of intangible assets, net operating losses and foreign tax credits. This was offset with an additional valuation allowance associated with a limited utilization of U.S. net operating losses in future periods.

At April 27, 2019, the Company had available $9.0 million of federal and $4.8 million of state net operating loss carryforwards with a valuation allowance of $5.3 million and $0.9 million, respectively. If unused, the U.S. federal net operating loss carryforwards will expire by the year 2033. If unused, the state net operating loss carryforwards will expire by the year 2038.

The tax laws of Malta provide for investment tax credits of 30.0% for certain qualified expenditures. Total unused credits are $28.2 million at April 27, 2019, of which $27.4 million can be carried forward indefinitely and $0.8 million expire in 2020.

Income Taxes Paid

The Company paid income taxes of $27.8 million in fiscal 2019, $20.2 million in fiscal 2018 and $19.0 million in fiscal 2017.

Indefinite Reinvestment

The Company has not provided for deferred income taxes on the undistributed earnings of foreign subsidiaries except for certain identified amounts. The amount the Company expects to repatriate is based on a variety of factors including current year earnings of the foreign subsidiaries, foreign investment needs, and U.S. cash flow considerations. The Company considers undistributed foreign earnings to be indefinitely reinvested. It is not practicable to determine the amount of deferred tax liability on such foreign earnings as the actual tax liability is dependent on circumstances that exist when the remittance occurs.

Unrecognized Tax Benefits

The Company operates in multiple jurisdictions throughout the world and the income tax returns of its subsidiaries in various jurisdictions are subject to periodic examination by the tax authorities. The Company regularly assesses the status of these examinations and the various outcomes to determine the adequacy of its provision for income taxes. The amount of gross unrecognized tax benefits totaled $3.1 million and $1.4 million at April 27, 2019 and April 28, 2018, respectively. These amounts represent the amount of unrecognized benefits that, if recognized, would favorably impact the effective tax rate if resolved in the Company’s favor.

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



(Dollars in Millions)	April 27, 2019			April 28, 2018
Balance at Beginning of Fiscal Year	$	1.4		$	1.3
Increases for Positions Related to the Prior Years	1.8			—
Increases for Positions Related to the Current Year	0.9			0.1
Decreases for Positions Related to the Prior Years	—			—
Lapsing of Statutes of Limitations	(1.0		)	—
Balance at End of Fiscal Year	$	3.1		$	1.4

At April 27, 2019, it is not possible to reasonably estimate the expected change to the total amount of unrecognized tax benefits in the next twelve months.

The U.S. federal statute of limitations remains open for fiscal years ended on or after 2016 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 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. The Company had $0.1 million accrued for interest and no accrual for penalties at April 27, 2019.