INCOME TAXES |
6 Months Ended | ||||||||||||||||||||||||
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Jul. 01, 2018 | |||||||||||||||||||||||||
| Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||
| INCOME TAXES |
NOTE 6. INCOME TAXES
Our effective tax rate for the year is expected to approximate 23.0 percent, excluding any discrete tax items that may arise.
Our effective tax rates for the three and six months ended July 1, 2018, were 22.5 percent and 29.0 percent, respectively. The three months ended July 1, 2018, contained only immaterial discrete items. The six months ended July 1, 2018, contained $74 million, or $0.45 per share, of unfavorable net discrete tax items, primarily due to $80 million of discrete items related to the 2017 Tax Cuts and Jobs Act (Tax Legislation). This includes $45 million associated with changes related to the Tax Legislation measurement period adjustment, detailed below, and $35 million associated with the one-time recognition of deferred tax charges at historical tax rates on intercompany profit in inventory.
Our effective tax rates for the three and six months ended July 2, 2017, were 26.4 percent and 26.2 percent, respectively and contained only immaterial discrete tax items.
The SEC issued guidance which addressed the uncertainty in the application of GAAP to the Tax Legislation where certain income tax effects could not be finalized at December 31, 2017. This guidance allows entities to record provisional amounts based on current estimates that are updated on a quarterly basis. As a result, our accounting for the effects of the Tax Legislation is not considered complete at this time. The final transition impacts of the Tax Legislation may differ from our estimates, possibly materially, due to, among other things, changes in interpretations of the Tax Legislation, any legislative action to address questions that arise because of the Tax Legislation, any changes in accounting standards for income taxes or related interpretations in response to the Tax Legislation, or any updates or changes to estimates we have utilized to calculate the transition impacts. The SEC requires final calculations to be completed within the one-year measurement period ending December 22, 2018, and reflect any additional guidance issued throughout the year. Any adjustments of provisional amounts will be reported in the period in which the estimates change. We have made provisional estimates of the effects of the Tax Legislation in three primary areas: (1) the one-time transition tax; (2) the withholding tax accrued on those earnings no longer considered permanently reinvested at December 31, 2017 and (3) our existing deferred tax balances. The Internal Revenue Service (IRS) continues to issue guidance, which required adjustment of the one-time transition tax as shown in the table below.
The changes during the one-year measurement period for the six months ended July 1, 2018, for each group consisted of the following:
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