

	FISCAL YEAR
	2019			2018			2017
	(in thousands)
Current expense/(benefit):
Federal	$	8,414		$	(3,549	)	$	10,245
Foreign	14,513			14,548			11,923
State	2,312			2,628			1,414
Current expense	25,239			13,627			23,582

Deferred expense/(benefit):
Federal	(625		)	2,145			20,467
Foreign	(2,198		)	(11,228		)	1,214
State	200			194			2,030
Deferred expense/(benefit)	(2,623		)	(8,889		)	23,711

Total income tax expense	$	22,616		$	4,738		$	47,293

The Company’s effective tax rate was 22.2%, 8.6% and 47.0% for fiscal years 2019, 2018 and 2017, respectively. The following summary reconciles income taxes at the U.S. federal statutory rate of 21% applicable for 2019 and 2018 and 35% applicable for 2017 to the Company’s actual income tax expense:



	FISCAL YEAR
	2019			2018			2017
	(in thousands)
Income taxes at U.S. federal statutory rate	$	21,381		$	11,548		$	35,189
Increase (decrease) in taxes resulting from:
State income taxes, net of federal tax effect	2,321			2,228			2,055
Non-deductible business expenses	933			1,352			695
Non-deductible employee compensation	1,453			2,566			80
Tax effects of Company owned life insurance	(636		)	235			(1,295		)
Tax effects of Tax Act:
One-time transition tax on foreign earnings	—			(5,000		)	11,707
Remeasurement of net Deferred Tax Asset	—			(1,739		)	3,467
Tax effects of undistributed earnings from foreign subsidiaries not deemed to be indefinitely reinvested	(183		)	61			523
Foreign and U.S. tax effects attributable to foreign operations	783			(2,226		)	(4,575		)
Valuation allowance effect – NOL	133			(79		)	(858		)
Federal tax credits	(700		)	(2,863		)	(632		)
Changes in unrecognized tax benefits	(3,324		)	(1,010		)	874
Other	455			(335		)	63
Income tax expense	$	22,616		$	4,738		$	47,293

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted into law. Among the significant changes resulting from the law, the Tax Act reduced the U.S. federal income tax rate from 35% to 21% effective for the year beginning January 1, 2018 and created a modified territorial tax system with a one-time mandatory “transition toll tax” on previously unrepatriated foreign earnings.

In accordance with SEC Staff Bulletin No. 118 (“SAB 118”), the Company recorded certain provisional estimates for the impact of the Tax Act as of December 31, 2017. Under the transitional provisions of SAB 118, the Company had a one-year measurement period to complete the accounting for the initial tax effects of the Tax Act. During the year ended December 30, 2018, the Company completed its accounting for the provisional estimates of the Tax Act and finalized its measurement period adjustments related to the one-time transition tax and remeasurement of its net deferred tax asset, as further discussed below. While the Company’s accounting for the recorded impact of the Tax Act is deemed complete, these amounts are based on prevailing regulations and currently available information, and any additional guidance issued by the IRS could impact the amounts in future periods.

Impacts of Deemed Repatriation: The Tax Act imposed a one-time transition tax on unrepatriated post-1986 accumulated earnings and profits of certain foreign subsidiaries (“E&P”). As of December 31, 2017, the Company recorded a provisional tax expense of $11.7 million related to the one-time transition tax. As of December 30, 2018, the Company had completed its assessment of the one-time transition tax which resulted in a $5.0 million decrease to the previously recorded provisional amount.

Remeasurement of Deferred Tax Assets and Liabilities: As of December 31, 2017, the Company recorded a provisional tax expense of $3.5 million related to the remeasurement of its net deferred tax asset to reflect the change in corporate tax rate from 35% to 21%. As of December 30, 2018, the Company had completed the accounting of remeasuring its net deferred tax asset which resulted in a $1.7 million decrease to the previously recorded provisional amount.

Deferred income taxes for the years ended December 29, 2019 and December 30, 2018, reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.



	FISCAL YEAR
	2019			2018
	(in thousands)
Deferred tax assets
Lease liability	$	29,782		$	—
Net operating loss carryforwards	3,090			2,349
Derivative instruments	1,638			—
Deferred compensation	20,194			18,945
Inventory	3,200			4,712
Prepaids, accruals and reserves	7,935			6,473
Pensions	9,229			4,290
Other	71			—
Deferred tax asset (gross)	75,139			36,769
Valuation allowance on net operating loss carryforwards	(971		)	(1,067		)
Deferred tax asset (net)	$	74,168		$	35,702

Deferred tax liabilities
Property and equipment	$	23,770		$	24,871
Intangible assets	33,760			18,699
Lease asset	29,301			—
Foreign currency	3,026			2,357
Foreign withholding taxes on unremitted earnings	178			348
Other	—			314
Deferred tax liabilities	90,035			46,589

Net deferred tax liabilities	$	15,867		$	10,887

Management believes, based on the Company’s history of taxable income and expectations for the future, that it is more likely than not that future taxable income will be sufficient to fully utilize the federal deferred tax assets at December 29, 2019.

During the year ended December 29, 2019, significant changes to the Company’s deferred tax balances included a $17.2 million increase in intangible deferred liability primarily related to its acquisition of nora.

Beginning in 2018, the Tax Act included two new U.S. tax base erosion provisions, the global intangible low-taxed income (“GILTI”) provisions and the base-erosion and anti-abuse tax (“BEAT”) provisions. The Company has elected to account for tax effects of GILTI in the period when incurred, and therefore has not provided any deferred tax impacts of GILTI in its consolidated financial statements.

The Company had approximately $7.5 million in foreign net operating losses for which the Company applied a valuation allowance against $0.9 million of such losses. The Company had approximately $87.6 million in state net operating loss carryforwards relating to continuing operations with expiration dates through 2035. The Company has provided a valuation allowance against $14.6 million of such losses, which the Company does not expect to utilize. In addition, the Company has approximately $36.0 million in state net operating loss carryforwards relating to discontinued operations against which a full valuation allowance has been provided.

Historically, the Company has not provided for U.S. federal and state income taxes on the undistributed accumulated earnings of its foreign subsidiaries, with the exception of its Canada subsidiaries, because such earnings were deemed to be permanently reinvested. Due to the passage of the Tax Act on December 22, 2017, the Company was required to recognize U.S. taxes as a result of the one-time transition tax on the higher of its accumulated earnings as of November 2, 2017, or December 31, 2017.

Although the one-time transition tax on unrepatriated post-1986 accumulated earnings and profits of certain non-U.S. subsidiaries, the GILTI provisions and the dividends received deduction created as a result of the Tax Act generally eliminates additional U.S. federal income taxes on dividends from our foreign subsidiaries, the Company continues to assert that all of its undistributed earnings in its non-U.S. subsidiaries, excluding subsidiaries within Canada, are indefinitely reinvested outside of the U.S. The Company expects that domestic cash resources will be sufficient to fund its domestic operations and cash commitments in the future. In the event the Company determines not to continue to assert that all or part of its undistributed earnings in its non-U.S. subsidiaries are permanently reinvested, an actual repatriation from its non-U.S. subsidiaries could still be subject to additional foreign withholding and U.S. state taxes, the determination of which is not practicable.

The Company’s federal income tax returns are subject to examination for the years 2016 to the present. In addition, certain federal tax attribute carryovers established since 2001 could be adjusted as these amounts are still subject to examination.

The Company files returns in numerous state and local jurisdictions and in general it is subject to examination by the state tax authorities for the years 2014 to the present. The Company files returns in numerous foreign jurisdictions and in general it is subject to examination by the foreign tax authorities for the years 2008 to the present.

During a check of the 2015 tax return of the Company’s UK subsidiary, Her Majesty’s Revenue & Customs (“HMRC”) issued a discovery assessment for the years 2012 through 2014 related to its intra-group financing arrangement. The discovery assessment is currently under appeal. HMRC has extended its check to tax year 2016, however, it has not issued an assessment beyond the 2014 tax year. Management believes it is reasonably possible HMRC may propose additional assessments for tax years 2015 & 2016; but does not anticipate the adjustments related to its intra-group financing arrangement would result in a material change to its financial position. The Company will continue to evaluate the recognition criteria for unrecognized tax benefits as it relates to the HMRC review; however, as of December 29, 2019, recognition thresholds had not been met.

As of December 29, 2019, and December 30, 2018, the Company had $25.5 million and $28.1 million, respectively, of unrecognized tax benefits. It is reasonably possible that approximately $10.5 million of unrecognized tax benefits may be recognized within the next 12 months due to a lapse of statute of limitations.

If any of the $25.5 million of unrecognized tax benefits as of December 29, 2019 are recognized, there would be a favorable impact on the Company’s effective tax rate in future periods. If the unrecognized tax benefits are not favorably settled, $22.7 million of the total amount of unrecognized tax benefits would require the use of cash in future periods. The Company recognizes accrued interest and income tax penalties related to unrecognized tax benefits as a component of income tax expense. As of December 29, 2019, the Company had accrued interest and penalties of $2.9 million, which is included in the total unrecognized tax benefit noted above. The timing of the ultimate resolution of the Company’s tax matters and the payment and receipt of related cash is dependent on a number of factors, many of which are outside the Company’s control.



	FISCAL YEAR
	2019			2018			2017
	(in thousands)
Balance at beginning of year	$	28,143		$	29,221		$	27,888
Increases related to tax positions taken during the current year	318			671			627
Increases related to tax positions taken during the prior years	1,093			180			709
Decreases related to tax positions taken during the prior years	(2,809		)	—			—
Decreases related to settlements with taxing authorities	—			—			—
Decreases related to lapse of applicable statute of limitations	(1,266		)	(1,861		)	(462		)
Changes due to foreign currency translation	7			(68		)	459
Balance at end of year	$	25,486		$	28,143		$	29,221