On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) was enacted and signed into law in response to the market volatility and instability resulting from the COVID-19 pandemic. It includes a significant number of tax provisions and lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of 2017 (the 2017 Act). The changes are mainly related to: (1) the business interest expense disallowance rules for 2019 and 2020; (2) net operating loss rules; (3) charitable contribution limitations; (4) employee retention credit; and (5) the realization of corporate alternative minimum tax credits.

The Company continues to assess the impact and future implications of these provisions; however, it does not anticipate any amounts that could give rise to a material impact to the overall Consolidated Financial Statements.

The Company’s effective tax rate (ETR) was 10.6% and 2.3% for fiscal 2020 and fiscal 2019, respectively. The ETR in fiscal 2020 increased in comparison to fiscal 2019 primarily due to foreign earnings subject to US tax, partially offset by a shift in the geographic mix of income.

The ETR for both fiscal 2020 and fiscal 2019 was less than the US federal statutory tax rate primarily due to foreign earnings in jurisdictions with lower tax rates, a step-up of the US tax-deductible basis of intellectual property rights from intra-entity sales and excess tax benefits from share-based compensation. This was partially offset by foreign earnings subject to US tax. The jurisdictions with lower tax rates with the most significant tax impact include Barbados, Puerto Rico and the United Kingdom.

The ETR for fiscal 2018 was greater than the US federal statutory tax rate primarily due to enactment of the 2017 Tax Act. This was partially offset by foreign earnings in jurisdictions with lower tax rates and



Years Ended October 31, (In millions)	2020			2019			2018
Income before income taxes:
United States	$	(88.0	)	$	(32.8	)	$	(122.8	)
Foreign	354.5			510.2			454.7
	$	266.5		$	477.4		$	331.9
Income tax provision	$	28.1		$	10.7		$	192.0

The income tax provision (benefit) related to income in our Consolidated Statements of Income consists of:



Years Ended October 31, (In millions)	2020			2019			2018
Current:
Federal	$	1.4		$	9.2		$	165.6
State	1.1			1.6			0.5
Foreign	26.5			15.8			23.0
	29.0			26.6			189.1
Deferred:
Federal	3.2			(8.1		)	16.1
State	0.8			(0.9		)	1.0
Foreign	(4.9		)	(6.9		)	(14.2		)
	(0.9		)	(15.9		)	2.9
Income tax provision	$	28.1		$	10.7		$	192.0

We reconcile the provision for income taxes attributable to income from operations and the amount computed by applying the statutory federal income tax rate of 21% for fiscal 2020 and 2019, and 23% for fiscal 2018, to income before income taxes as follows:



Years Ended October 31, (In millions)	2020			2019			2018
Computed expected provision for taxes	$	56.0		$	100.3		$	77.5
(Decrease) increase in taxes resulting from:
Income earned outside the United States subject to different tax rates	(54.7		)	(85.6		)	(97.5		)
State taxes, net of federal income tax benefit	1.9			0.4			(4.9		)
Foreign source income subject to United States tax	32.0			16.1			—
U.S. tax reform	—			(5.8		)	214.6
Incentive stock option compensation and non-deductible employee compensation	(4.4		)	(7.8		)	(11.1		)
Deferred tax asset step-up	(9.0		)	(6.7		)	(1.9		)
US provision-to-return	7.0			4.4			(0.7		)
Tax accrual adjustment	(0.1		)	(1.5		)	13.9
Other, net	(0.6		)	(3.1		)	2.1
Actual provision for income taxes	$	28.1		$	10.7		$	192.0



Years Ended October 31, (In millions)	2020			2019
Deferred tax assets:
Accounts receivable, principally due to allowances for doubtful accounts	$	2.6		$	3.6
Inventories	5.8			3.5
Litigation settlements	0.2			0.1
Accrued liabilities, reserves and compensation accruals	76.9			55.1
Foreign deferred tax assets	90.9			52.5
Restricted stock and stock option expenses	21.4			26.1
Net operating loss carryforwards	9.6			8.3
Intangible assets	19.6			11.1
Research and experimental expenses - Section 59(e)	9.2			2.5
Tax credit carryforwards	1.5			1.3
Total gross deferred tax assets	237.7			164.1
Less: valuation allowance	(45.3		)	(41.5		)
Deferred tax assets	192.4			122.6
Deferred tax liabilities:
Tax deductible goodwill	(29.7		)	(25.0		)
Plant and equipment	(39.2		)	(14.3		)
Deferred tax on foreign earnings	(7.5		)	(5.9		)
Transaction costs	(0.7		)	(0.7		)
Foreign deferred tax liabilities	(61.0		)	(27.6		)
Total gross deferred tax liabilities	(138.1		)	(73.5		)
Net deferred tax assets	$	54.3		$	49.1

In assessing the realizability of deferred tax assets, the Company analyzes whether some or all deferred tax assets will not be realized. This analysis considers historical taxable income, the projected reversal of deferred tax liabilities, projected taxable income and tax planning strategies. Based upon this analysis, it is more likely than not the deferred tax assets, net of valuation allowance, will be realized. The valuation allowance is $45.3 million and $41.5 million for fiscal 2020 and fiscal 2019, respectively. The increase is primarily due to state net operating loss carryforwards and foreign tax credits.

At October 31, 2020, we had federal net operating loss carryforwards of $20.3 million, state net operating loss carryforwards of $16.3 million, and $1.9 million of California research credit carryforwards. Federal net operating loss carryforwards of $15.8 million expire on various dates between 2024 and 2037 and $4.5 million does not expire. The state net operating loss carryforwards expire on various dates between 2021 through 2040, and the California research credit carryforwards do not expire.

The Company recognizes tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized from such positions are estimated based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The changes in the balance of unrecognized tax benefits (UTB) were as follows:



(In millions)
Balance at October 31, 2018	$	68.9
Decrease from prior year's UTB's	(11.8		)
Increase from current year's UTB's	8.3
UTB (decrease) from tax authorities' settlements	(14.1		)
UTB (decrease) from expiration of statute of limitations	(1.6		)
Balance at October 31, 2019	$	49.7
Increase from prior year's UTB's	3.4
Increase from current year's UTB's	7.6
UTB (decrease) from expiration of statute of limitations	(2.2		)
Balance at October 31, 2020	$	58.5

As of October 31, 2020, 2019 and 2018 there were unrecognized tax benefits of $58.5 million, $49.7 million and $68.9 million, respectively. If recognized, these tax benefits would affect our effective tax rates for 2020, 2019 and 2018, by $46.0 million, $41.7 million and $46.6 million, respectively. It is the Company's policy to recognize interest and penalties related to income tax as income tax expense. As of October 31, 2020, 2019 and 2018, we had accrued gross interest and penalties related to unrecognized tax benefits of $7.3 million, $3.9 million and $4.4 million, respectively.

Included in the balance of unrecognized tax benefits at October 31, 2020, is $7.2 million related to tax positions for which it is reasonably possible that the total amounts could significantly change during the next twelve months.

In November 2020, the Company completed an intra-group transfer of certain intellectual property and related operating assets and liabilities to its UK subsidiary as part of a group restructuring to establish headquarters operation in the UK. Under US GAAP, any profit resulting from this transfer will be eliminated upon consolidation. However, the transfer resulted in a step-up of the UK tax-deductible basis

in the transferred assets, including goodwill, and created a temporary difference between the book basis and the tax basis of these assets. As a result, the Company expects to recognize a deferred tax asset of up to $2.4 billion, with a corresponding income tax benefit. The valuation of the transferred assets, and the calculation of the amount of the deferred tax asset, will be finalized during the first quarter of fiscal 2021.