Income Taxes

12 Months Ended

Dec. 28, 2019

The components of income before income taxes were taxed under the following jurisdictions:



(In thousands)	2019		2018		2017

Domestic	$	112,812	$	105,455	$	76,876
Foreign	53,271		44,962		50,096

Income before income taxes	$	166,083	$	150,417	$	126,972

Income tax expense consists of the following:



(In thousands)	2019			2018			2017

Current tax expense:
Federal	$	19,066		$	17,974		$	28,584
Foreign	12,727			9,650			10,219
State and local	3,892			3,158			2,241

Current tax expense	35,685			30,782			41,044

Deferred tax (benefit) expense:
Federal	1,725			(1,381		)	(1,764		)
Foreign	(2,311		)	551			1,118
State and local	158			1,000			(2,514		)

Deferred tax (benefit) expense	(428		)	170			(3,160		)

Income tax expense	$	35,257		$	30,952		$	37,884

The difference between the reported income tax expense and a tax determined by applying the applicable U.S. federal statutory income tax rate to income before income taxes is reconciled as follows:



(In thousands)	2019			2018			2017

Expected income tax expense	$	34,892		$	31,588		$	44,440
State and local income tax, net of federal benefit	3,234			3,495			1,135
Effect of foreign statutory rates different from U.S. and other foreign adjustments	(771		)	759			(6,026		)
U.S. production activities deduction	—			—			(1,575		)
Investment in unconsolidated affiliates	538			(2,776		)	216
Benefit of stock-based compensation deductions	(36		)	(41		)	(2,160		)
Effect of tax on accumulated foreign earnings	(111		)	(4,415		)	12,893
Effect of tax rate change on net deferred tax liability balance	—			—			(12,067		)
Other, net	(2,489		)	2,342			1,028

Income tax expense	$	35,257		$	30,952		$	37,884

The Tax Cuts and Jobs Act (the Act) was enacted on December 22, 2017. The Act reduced the U.S. federal corporate income tax

rate from 35 percent to 21 percent, required companies to pay a one-time transition tax on the accumulated earnings of certain foreign subsidiaries, and created new taxes on certain foreign-sourced earnings. The Company applied the guidance in Staff Accounting Bulletin No. 118 in accounting for the enactment date effects of the Act. At December 30, 2017, the Company made a reasonable estimate of the one-time transition tax on accumulated foreign earnings as well as the impact of the Act on its existing deferred tax balances. During the fourth quarter of 2018, the Company completed its accounting for all of the enactment-date income tax effects of the Act.

The one-time transition tax is based on the Company’s total post-1986 earnings and profits (E&P) for which the accrual of U.S. income taxes had previously been deferred. The Company recorded a provisional amount for its one-time transition tax liability, resulting in an increase in income tax expense of $12.9 million, or 22 cents per diluted share, at December 30, 2017. During 2018, the Company continued to refine its calculation of the transition tax. Following the completion of this analysis, the Company recorded a reduction to income tax expense of $4.4 million, or eight cents per diluted share, to reduce this liability. During 2019, the Treasury Department finalized regulations related to the calculation of the transition tax, the impact of which was immaterial to the financial statements. The Company continues to assert that the undistributed earnings of most of its foreign subsidiaries are permanently reinvested. No taxes have been accrued with respect to these undistributed earnings or any outside basis differences.

On December 30, 2017, the Company remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21 percent, resulting in an income tax benefit of $12.1 million, or 21 cents per diluted share. The Company has concluded that no further adjustment is needed related to this remeasurement.

The global intangible low-taxed income (GILTI) provisions of the Act impose a tax on the 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 has elected to provide for the tax expense related to GILTI in the year the tax is incurred.

The Company includes interest and penalties related to income tax matters as a component of income tax expense. The income tax expense related to penalties and interest was immaterial in 2019, 2018, and 2017.

The statute of limitations is open for the Company’s federal tax return for 2015 and all subsequent years. The statutes of limitations for most state returns are open for 2016 and all subsequent years, and some state and foreign returns are also open for some earlier tax years due to differing statute periods. The Internal Revenue Service is currently auditing the Company’s 2015 and 2017 tax returns. While the Company believes that it is adequately reserved for possible audit adjustments, the final resolution of these examinations cannot be determined with certainty and could result in final settlements that differ from current estimates.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:



(In thousands)	2019			2018

Deferred tax assets:
Inventories	$	12,247		$	12,297
Other postretirement benefits and accrued items	9,271			9,213
Other reserves	6,834			7,847
Foreign tax attributes	5,909			6,252
State tax attributes, net of federal benefit	22,395			27,651
Stock-based compensation	3,378			2,949
Right of Use Liability	5,965			—
Basis difference in unconsolidated affiliates	6,547			1,067

Total deferred tax assets	72,546			67,276
Less valuation allowance	(23,130		)	(25,311		)

Deferred tax assets, net of valuation allowance	49,416			41,965

Deferred tax liabilities:
Property, plant, and equipment	47,791			44,910
Pension	949			250
Right of Use Asset	5,967			—
Other Liabilities	311			—

Total deferred tax liabilities	55,018			45,160

Net deferred tax liabilities	$	(5,602	)	$	(3,195	)

As of December 28, 2019, after consideration of the federal impact, the Company had state income tax credit carryforwards of $2.3 million, all of which expire by 2022, and other state income tax credit carryforwards of $11.7 million with unlimited lives. The Company had state net operating loss (NOL) carryforwards with potential tax benefits of $8.4 million, after consideration of the federal impact, expiring between 2020 and 2034. The state tax credit and NOL carryforwards are offset by valuation allowances totaling $10.7 million.

As of December 28, 2019, the Company had other foreign tax attributes with potential tax benefits of $5.0 million that have an unlimited life. These attributes were offset by a valuation allowance totaling $3.0 million. The Company also had other foreign tax attributes of $0.9 million, which have limited lives expiring between 2025 and 2039.

Income taxes paid were approximately $41.8 million in 2019, $38.1 million in 2018, and $42.5 million in 2017.