INCOME TAXES

The Company's income tax expense was $82.6 million, $214.8 million and $64.2 million and the Company's effective income tax rate was 17.3%, 43.0% and 18.4% for the years ended November 24, 2019, November 25, 2018 and November 26, 2017, respectively.

On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the "Tax Act"), which significantly changed U.S. tax law. The Tax Act lowered the Company’s U.S. statutory federal income tax rate from 35% to 21% effective on November 26, 2018. Beginning the first quarter of 2019, the Company's effective tax rate reflected a provision to tax Global Intangible Low-Taxed Income ("GILTI") of foreign subsidiaries and a tax benefit for Foreign Derived Intangible Income ("FDII"). In accordance with U.S. GAAP, the Company made an accounting policy election to account for the GILTI provision in the period in which it is incurred.

The decrease in the effective tax rate in 2019 as compared to 2018 was primarily driven by a $143.4 million one-time tax charge in 2018 related to the enactment of the Tax Act. Included in the charge was $95.6 million related to re-measurement of deferred tax assets and liabilities, $37.5 million from a one-time U.S. transition tax on undistributed foreign earnings, and $10.3 million related to foreign and state tax costs associated with future remittances of undistributed earnings from foreign subsidiaries. The increase in the effective tax rate in 2018 as compared to 2017 was primarily driven by a one-time tax charge related to the impact of the Tax Act described above and proportionately less tax benefit from the lower tax cost of foreign operations, partially offset by the lower U.S. federal statutory tax rate.

The Company's income tax expense differed from the amount computed by applying the U.S. federal statutory income tax rate to income before income taxes as follows:



	Year Ended
	November 24, 2019					November 25, 2018					November 26, 2017
	(Dollars in thousands)
Income tax expense at U.S. federal statutory rate	$	100,293		21.0	%	$	111,755		22.4	%	$	122,073		35.0	%
State income taxes, net of U.S. federal impact	4,496			1.0	%	11,102			2.2	%	7,598			2.2	%
Change in valuation allowance	(81		)	—	%	(9,239		)	(1.9	)%	(9,624		)	(2.8	)%
Impact of foreign operations⁽¹⁾⁽²⁾	7,132			1.5	%	(17,149		)	(3.4	)%	(43,806		)	(12.6	)%
Foreign-derived intangible income benefit ("FDII")	(11,918		)	(2.5	)%	—			—	%	—			—	%
Reassessment of tax liabilities	(6,480		)	(1.4	)%	(12,552		)	(2.5	)%	(5,553		)	(1.6	)%
Stock-based compensation⁽³⁾	(15,730		)	(3.3	)%	(10,715		)	(2.1	)%	(5,602		)	(1.6	)%
Other, including non-deductible expenses⁽¹⁾	4,892			1.0	%	(1,783		)	(0.4	)%	(861		)	(0.2	)%
Impact of US Tax Act	—			—	%	143,359			28.7	%	—			—	%
Total	$	82,604		17.3	%	$	214,778		43.0	%	$	64,225		18.4	%

_____________


(1)	Foreign branches are included in the Impact of foreign operations. 2017 and 2018 have been conformed to the November 24, 2019 presentation.

(2) Included in the Impact of foreign operations are foreign rates differential, GILTI and tax impact on actual and deemed repatriation of foreign earnings.


(3)	Classification of stock-based compensation for 2017 has been conformed to the November 25, 2018 and November 24, 2019 presentation.

Impact of foreign operations. The tax rate benefit in 2019 decreased as compared to 2018 is primarily due to additional tax charges from foreign jurisdictions. Tax Act impacts (e.g. GILTI) and a lesser amount of excess tax benefit on actual and deemed repatriation of foreign earnings. The tax rate benefit in 2018 decreased as compared to 2017 primarily because the new U.S. federal income tax rate more closely aligns with the tax rates in our foreign jurisdictions.

Change in valuation allowance. The $9.2 million tax benefit in 2018 is primarily due to the release of valuation allowances on deferred tax assets of certain foreign subsidiaries, primarily in Japan where management concluded that it is more likely than not that such assets will be realized.

Reassessment of tax liabilities. The $6.5 million tax benefit in 2019 is primarily attributable to finalization of state tax refund claims. The $12.6 million tax benefit in 2018 is primarily attributable to finalization of a foreign audit.

The U.S. and foreign components of income before income taxes were as follows:



	Year Ended
	November 24, 2019		November 25, 2018		November 26, 2017
	(Dollars in thousands)
Domestic	$	120,692	$	151,229	$	67,407
Foreign	356,892		348,793		281,374
Total income before income taxes	$	477,584	$	500,022	$	348,781

Income tax expense consisted of the following:



	Year Ended
	November 24, 2019			November 25, 2018		November 26, 2017
	(Dollars in thousands)
U.S. Federal
Current	$	13,182		$	12,468	$	7,936
Deferred	(22,319		)	126,210		1,240
	$	(9,137	)	$	138,678	$	9,176
U.S. State
Current	$	(2,939	)	$	6,447	$	3,441
Deferred	1,002			4,655		4,157
	$	(1,937	)	$	11,102	$	7,598
Foreign
Current	$	87,324		$	61,605	$	53,334
Deferred	6,354			3,393		(5,883		)
	$	93,678		$	64,998	$	47,451
Consolidated
Current	$	97,567		$	80,520	$	64,711
Deferred	(14,963		)	134,258		(486		)
Total income tax expense	$	82,604		$	214,778	$	64,225

Deferred Tax Assets and Liabilities

The Company's deferred tax assets and deferred tax liabilities were as follows:



	November 24, 2019			November 25, 2018
	(Dollars in thousands)
Deferred tax assets
Foreign tax credit carryforwards	$	157,379		$	133,620
State net operating loss carryforwards	10,070			9,708
Foreign net operating loss carryforwards	45,047			52,327
Employee compensation and benefit plans⁽¹⁾	141,489			147,347
Advance royalties	15,213			22,366
Accrued liabilities⁽¹⁾	24,648			26,167
Sales returns and allowances⁽¹⁾	22,494			25,715
Inventory⁽¹⁾	11,635			13,030
Property, plant and equipment⁽¹⁾	12,266			11,823
Unrealized foreign exchange gains or losses	5,527			5,467
Other⁽¹⁾	9,557			8,718
Total gross deferred tax assets	455,325			456,288
Less: Valuation allowance	(19,611		)	(21,970		)
Deferred tax assets, net of valuation allowance	435,714			434,318
Deferred tax liabilities
U.S. Branches⁽¹⁾	(27,134		)	(33,735		)
Residual tax liability on unremitted foreign earnings	(5,672		)	(5,737		)
Total deferred tax liabilities	(32,806		)	(39,472		)
Total net deferred tax assets	$	402,908		$	394,846

_____________


(1)	Certain components of net deferred tax assets for 2018 have been conformed to reflect the adoption of Tax Act guidance updates issued subsequent to November 25, 2018.

Foreign tax credit carryforwards. The foreign tax credit carryforwards at November 24, 2019, are subject to expiration through 2029 if not utilized.

Foreign net operating loss carryforwards. As of November 24, 2019, the Company had a deferred tax asset of $44.2 million for foreign net operating loss carryforwards of $168.0 million. Of these operating losses $79.9 million are subject to expiration through 2028. The remaining $88.1 million are available as indefinite carryforwards under applicable tax law.

Valuation Allowance. The following table details the changes in valuation allowance during the year ended November 24, 2019:



	Valuation Allowance at November 25, 2018		Changes in Related Gross Deferred Tax Asset			Change / (Release)			Valuation Allowance at November 24, 2019
	(Dollars in thousands)
U.S. state net operating loss carryforwards	$	2,096	$	(494	)	$	938		$	2,540
Foreign net operating loss carryforwards and other foreign deferred tax assets	19,874		(1,784		)	(1,019		)	17,071
	$	21,970	$	(2,278	)	$	(81	)	$	19,611

At November 24, 2019, the Company's valuation allowance primarily related to its gross deferred tax assets for state and foreign net operating loss carryforwards, which reduced such assets to the amount that will more likely than not be realized.

Unremitted earnings of certain foreign subsidiaries. The Company historically provided for U.S. income taxes on the undistributed earnings of foreign subsidiaries unless they were considered indefinitely reinvested outside the United States. The Company has reevaluated its historic indefinite reinvestment assertion as a result of the enactment of the Tax Act and determined that any historical undistributed earnings through November 25, 2018 of foreign subsidiaries, as well as most of the additional undistributed earnings generated through November 2019, are no longer considered to be indefinitely reinvested. The deferred tax liability related to foreign and state tax costs associated with the future remittance of these undistributed earnings of foreign subsidiaries was $9.7 million. For the year ended November 24, 2019, management asserted indefinite reinvestment on a small portion of foreign earnings generated in fiscal year 2019. If such earnings were to be distributed to the U.S., the related foreign withholding and state tax costs would be approximately $1 million.

Uncertain Income Tax Positions

As of November 24, 2019, the Company’s total gross amount of unrecognized tax benefits was $36.6 million, of which $33.1 million could impact the effective tax rate, if recognized, as compared to November 25, 2018, when the Company’s total gross amount of unrecognized tax benefits was $26.6 million, of which $24.2 million could have impacted the effective tax rate, if recognized.

The following table reflects the changes to the Company's unrecognized tax benefits for the year ended November 24, 2019 and November 25, 2018:



	November 24, 2019			November 25, 2018
	(Dollars in thousands)
Unrecognized tax benefits beginning balance	$	26,594		$	33,786
Increases related to current year tax positions	2,432			3,657
Increases related to tax positions from prior years	3,696			5,686
Decreases related to tax positions from prior years	(3,222		)	(13,731		)
Settlement with tax authorities	7,119			—
Lapses of statutes of limitation	(45		)	(1,811		)
Other, including foreign currency translation	(15		)	(993		)
Unrecognized tax benefits ending balance	$	36,559		$	26,594

The Company evaluates all domestic and foreign audit issues and believes that it is reasonably possible that total gross unrecognized tax benefits could decrease by as much as $2.2 million within the next twelve months.

As of November 24, 2019 and November 25, 2018, accrued interest and penalties primarily relating to non-U.S. jurisdictions were $1.7 million and $2.7 million, respectively.

The Company files income tax returns in the United States and in various foreign (including Belgium, Hong Kong, India, Mexico and Russia), state and local jurisdictions. With few exceptions, examinations have been completed by tax authorities or the statute of limitations has expired for United States federal, foreign, state and local income tax returns filed by the Company for years through 2008.