Income Tax Expense

12 Months Ended

Jun. 28, 2024

Income Tax Disclosure [Abstract]

Income Tax Expense

Income Tax Expense

Income (Loss) Before Taxes

The domestic and foreign components of Income (loss) before taxes were as follows:

	2024		2023		2022
	(in millions)
Foreign	$	(351)	$	(2,019)	$	1,432
Domestic	(310)		469		739
Income (loss) before taxes	$	(661)	$	(1,550)	$	2,171

Income Tax Expense

The components of the income tax expense were as follows:

	2024		2023		2022
	(in millions)
Current:
Foreign	$	260	$	153	$	143
Domestic - Federal	34		35		341
Domestic - State	4		(6)		25
	298		182		509
Deferred:
Foreign	13		(6)		29
Domestic - Federal	(152)		(36)		84
Domestic - State	(22)		(6)		3
	(161)		(48)		116
Income tax expense	$	137	$	134	$	625

The Tax Cuts and Jobs Act (the “2017 Act”), enacted on December 22, 2017, includes a broad range of tax reform proposals affecting businesses. The Company completed its accounting for the tax effects of the enactment of the 2017 Act during the second quarter of 2019. However, the U.S. Treasury and the Internal Revenue Services (“IRS”) have issued tax guidance on certain provisions of the 2017 Act since the enactment date, and the Company anticipates the issuance of additional regulatory and interpretive guidance. The Company applied a reasonable interpretation of the 2017 Act along with the then-available guidance in finalizing its accounting for the tax effects of the 2017 Act. Any additional regulatory or interpretive guidance would constitute new information, which may require further refinements to the Company’s estimates in future periods.

On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022, which contained significant law changes related to tax, climate, energy and health care. The tax measures include, among other things, a corporate alternative minimum tax (“CAMT”) of 15% on corporations with three-year average annual adjusted financial statement income (“AFSI”) exceeding $1.00 billion. The corporate alternative minimum tax is effective for the Company beginning with 2024. The Company is not subject to the CAMT of 15% for fiscal year 2024 as its average annual AFSI did not exceed $1.00 billion for the preceding three-year period.

Deferred Taxes

Temporary differences and carryforwards, which give rise to a significant portion of deferred tax assets and liabilities were as follows:

	June 28, 2024		June 30, 2023
	(in millions)
Deferred tax assets:
Sales related reserves and accrued expenses not currently deductible	$	66	$	69
Accrued compensation and benefits not currently deductible	116		88
Net operating loss carryforward	175		183
Business credit carryforward	528		478
Long-lived assets	75		72
Interest and hedging costs not currently deductible	254		76
Other	59		71
Total deferred tax assets	1,273		1,037
Deferred tax liabilities:
Long-lived assets	(46)		(57)
Unremitted earnings of certain non-U.S. entities	(286)		(291)
Other	(33)		(7)
Total deferred tax liabilities	(365)		(355)
Valuation allowances	(582)		(565)
Deferred tax assets, net	$	326	$	117

The increase in the deferred tax assets is attributable primarily to the IRS interest payments made in connection with the notice of deficiency received for years 2008 through 2011 that are not currently deductible under §163(j) of the Internal Revenue Code of 1986, as amended, and the unamortized original issue discount (“OID”) related to the premium paid to purchase Capped Calls in connection with the offering of the 2028 Convertible Notes. As described in Note 7, Debt, the deferred tax asset related to the unamortized OID was recorded as a decrease to Additional paid-in capital. The assessment of valuation allowances against deferred tax assets requires estimations and significant judgment. The Company continues to assess and adjust its valuation allowance based on operating results and market conditions. After weighing both the positive and negative evidence available, including, but not limited to, earnings history, projected future outcomes, industry and market trends and the nature of each of the deferred tax assets, the Company determined that it is able to realize its deferred tax assets except for certain loss and credit carryforwards.

The Company is permanently reinvested with respect to certain foreign earnings. There is no unrecognized deferred tax liability associated with the repatriation of these foreign undistributed earnings as it can be achieved without additional federal tax consequences.

Effective Tax Rate

Reconciliation of the U.S. Federal statutory rate to the Company’s effective tax rate is as follows:

	2024		2023		2022
U.S. Federal statutory rate	21	%	21	%	21	%
Tax rate differential on international income	(46)		(33)		(9)
Tax effect of U.S. foreign income inclusion	(2)		(1)		—
Tax effect of U.S. foreign minimum tax	—		—		5
Tax effect of U.S. foreign derived intangible income	3		4		(1)
Tax effect of U.S. non-deductible stock-based compensation	(1)		(1)		1
Tax effect of U.S. permanent differences	1		—		—
IRS Settlement	(1)		1		15
Change in valuation allowance	(3)		1		1
Unremitted earnings of certain non-U.S. entities	(4)		—		1
Foreign income tax credits	1		—		(3)
R&D tax credits	8		5		(4)
U.S. return to provision	—		(2)		—
Tax reserves	1		(1)		2
Other	1		(3)		—
Effective tax rate	(21)	%	(9)	%	29	%

Tax Holidays and Carryforwards

A substantial portion of the Company’s manufacturing operations in Malaysia, the Philippines and Thailand operate under various tax holidays and tax incentive programs, which will expire in whole or in part at various dates during 2025 through 2031. Certain tax holidays and tax incentive programs may be extended if specific conditions are met. On November 1, 2023, one of the Company’s tax holidays in Malaysia expired. The Company has applied for an extension and anticipates this extension, if granted, will be applied retroactively and begin on November 2, 2023. Because the exact terms of the extension are not currently known, the Company is applying the Malaysia corporate statutory tax rate on the expired tax holiday income. If a retroactive extension is granted, the Company will make an adjustment to its effective tax rate in that period.

The net impact of these tax holidays and tax incentives was an increase to the Company’s net earnings by $209 million, or $0.64 per diluted share, $140 million, or $0.44 per diluted share, and $566 million, or $1.79 per diluted share, in 2024, 2023 and 2022, respectively.

As of June 28, 2024, the Company had varying amounts of federal and state NOL/tax credit carryforwards that do not expire or, if not used, expire in various years. Following is a summary of the Company’s federal and state NOL/tax credit carryforwards and the related expiration dates of these NOL/tax credit carryforwards:

Jurisdiction	NOL/Tax Credit Carryforward Amount		Expiration
	(in millions)
Federal NOL (Pre 2017 Act Generation)	$	578	2026 to 2038
State NOL	342		2037 to 2045
Federal tax credits	61		2025 to 2044
State tax credits	746		No expiration

The federal and state NOLs and credits relating to various acquisitions are subject to limitations under Sections 382 and 383 of the Internal Revenue Code. The Company expects the total amount of federal and state NOLs ultimately realized will be reduced as a result of these provisions by $116 million and $240 million, respectively. The Company expects the total amount of federal and state credits ultimately realized will be reduced as a result of these provisions by $27 million and $2 million, respectively.

As of June 28, 2024, the Company had varying amounts of foreign NOL carryforwards that do not expire or, if not used, expire in various years, depending on the country. The major jurisdictions that the Company receives foreign NOL carryforwards and the related amounts and expiration dates of these NOL carryforwards are as follows:

Jurisdiction	NOL Carryforward Amount		Expiration
	(in millions)
Belgium	$	114	No expiration
Malaysia	108		2028 to 2030
Japan	61		2025 to 2026
Spain	46		No expiration
Netherlands	12		2026

Uncertain Tax Positions

With the exception of certain unrecognized tax benefits that are directly associated with the tax position taken, unrecognized tax benefits are presented gross in the Consolidated Balance Sheets.

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits excluding accrued interest and penalties:

	2024		2023		2022
	(in millions)
Unrecognized tax benefit, beginning balance	$	1,021	$	1,047	$	748
Gross increases related to current year tax positions	25		7		12
Gross increases related to prior year tax positions	73		22		358
Gross decreases related to prior year tax positions	(32)		(47)		(65)
Settlements	(363)		(5)		(1)
Lapse of statute of limitations	(3)		(3)		(5)
Unrecognized tax benefit, ending balance	$	721	$	1,021	$	1,047

As of June 28, 2024, June 30, 2023 and July 1, 2022, the portion of the gross unrecognized tax benefits, if recognized, that would affect the effective tax rate is $555 million, $855 million and $903 million, respectively. Interest and penalties related to unrecognized tax benefits are recognized in liabilities recorded for uncertain tax positions and are recorded in the provision for income taxes. Accrued interest and penalties included in the Company’s liability related to unrecognized tax benefits as of June 28, 2024, June 30, 2023 and July 1, 2022 was $181 million, $289 million and $254 million, respectively. As of June 28, 2024, June 30, 2023 and July 1, 2022, the Company’s payables related to unrecognized tax benefits, including accrued interest and penalties, were $736 million, $1.14 billion and $1.16 billion, respectively. Of these amounts, the Company believes it is reasonably likely that payments of $185 million may be made within the next twelve months and have classified that portion of these unrecognized tax benefits, including interest, in Income taxes payable on the Consolidated Balance Sheets as of June 28, 2024. The remaining payables related to unrecognized tax benefits are included in Other liabilities on the Consolidated Balance Sheets as of June 28, 2024, June 30, 2023 and July 1, 2022.

The Company files U.S. Federal, U.S. state and foreign tax returns. For both federal and state tax returns, with few exceptions, the Company is subject to examination for 2016 through 2023. The Company is no longer subject to examination by the IRS for periods prior to 2016, although carry forwards generated prior to those periods may still be adjusted upon examination by the IRS or state taxing authority if they either have been or will be used in a subsequent period. In the following major foreign jurisdictions where there is no tax holiday, the Company could be subject to examination as noted below:

Jurisdiction	Period Subject to Examination
China (calendar)	2014-2023
Ireland (fiscal)	2020-2023
India (fiscal)	2009-2023
Israel (fiscal)	2014-2023
Japan (fiscal)	2015-2023
Malaysia (fiscal)	2017-2023
Thailand (fiscal)	2014-2023
Singapore (fiscal)	2020-2023
United Kingdom (fiscal)	2022-2023

The Company had previously reached a final agreement with the IRS regarding notices of deficiency with respect to years 2008 through 2012 and in February 2024, reached a final agreement for resolving the notices of proposed adjustments with respect to years 2013 through 2015. During 2024, the Company made payments of $363 million for tax and $161 million for interest with respect to years 2008 through 2012 and recognized adjustments to align with IRS calculations, resulting in a remaining liability of $185 million related to all years from 2008 through 2015. The Company expects to pay any remaining balance with respect to this matter within the next twelve months.

In connection with settlements for the years 2008 through 2015, the Company expects to realize reductions to its mandatory deemed repatriation tax obligations and tax savings from interest deductions in future years aggregating to $165 million. Of this amount, $34 million of the interest savings from the interest paid with respect to years 2008 through 2012 is classified as a deferred tax asset due to interest expense limitation rules.

The Company believes that adequate provision has been made for any adjustments that may result from any other tax examinations. However, the outcome of such tax examinations cannot be predicted with certainty. If any issues addressed in the Company’s tax examinations are resolved in a manner not consistent with management’s expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs. As of June 28, 2024, with the exception of the final agreement with the IRS, it was not possible to estimate the amount of change, if any, in the unrecognized tax benefits that is reasonably possible within the next twelve months. Any significant change in the amount of the Company’s liability for unrecognized tax benefits would most likely result from additional information relating to the examination of the Company’s tax returns.