Income Taxes

6 Months Ended

Mar. 29, 2019

Income Tax Disclosure [Abstract]

Income Taxes

. Income Taxes

Our income tax expense, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect management's best assessment of estimated current and future taxes to be paid. We are subject to income taxes in the United States and numerous foreign jurisdictions. Significant judgments and estimates are required in determining the consolidated income tax expense.

Tax Act Enacted in 2017

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Act. The Tax Act made broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate income tax rate from 35 percent to 21 percent; (2) requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; (3) generally eliminating U.S. federal corporate income taxes on dividends from foreign subsidiaries; (4) capitalizing specific R&D expenses which are amortized over five to 15 years; and (5) other changes to how foreign and domestic earnings are taxed.

Our accounting for the impact of the Tax Act was completed in the first quarter of fiscal 2019 in accordance with the Staff Accounting Bulletin No. 118 measurement period. As of September 28, 2018, we had recorded a provisional amount for the Tax Act of $121.4 million. During the period ended December 28, 2018, we recorded a $35.0 million reduction to our provisional Tax Act amount resulting from completion of our evaluation of the income tax effects of indirect taxes related to the Deemed Repatriation Transition Tax ("Transition Tax") on our deferred tax assets. We also recorded a $1.0 million reduction to our provisional Tax Act amount due to finalizing our total estimate of the Transition Tax obligation. On January 18, 2019, the U.S. Department of the Treasury issued final regulations on the Transition Tax related to deemed paid foreign taxes eliminating a benefit we previously expected to realize. We recorded an additional $19.0 million tax expense in the quarter of enactment which is our quarter ended March 29, 2019. The final recorded amount related to the Tax Act was $104.4 million as of the period ended March 29, 2019.

Even though the accounting for the tax effects of the Tax Act is complete, there may be additional tax effects of the Tax Act that may change the final recorded tax expense associated with the Tax Act upon finalization of the law, regulations, and additional guidance.

We have included the impact of new provisions effective in our fiscal 2019 in our effective tax rate. The Tax Act imposes a minimum tax on certain foreign earnings ("minimum foreign tax") in the year earned. Our accounting policy

is to treat the minimum foreign tax as a current expense in the year incurred and have not provided deferred taxes on temporary differences related to such minimum foreign tax.

As a result of the adoption of ASC 606, we reduced our deferred tax assets by $26.3 million at the beginning of our first quarter of fiscal 2019.

Unrecognized Tax Benefit

As of March 29, 2019, the total amount of gross unrecognized tax benefits was $105.2 million, of which $66.9 million, if recognized, would reduce our effective tax rate. As of September 28, 2018, the total amount of gross unrecognized tax benefits was $102.0 million, of which $96.9 million, if recognized, would reduce our effective tax rate. The decrease in the amount which would reduce our effective tax rate from fiscal 2018 is primarily due to the $35.0 million deferred tax asset established in fiscal 2019 for the indirect effects of Transition Tax discussed previously. Our net liability for unrecognized tax benefits is classified within other non-current liabilities in our consolidated balance sheets.

Effective Tax Rate

Each period, a combination of different factors can impact our effective tax rate. These factors include both recurring items such as tax rates and the relative amount of income earned in foreign jurisdictions, as well as discrete items such as changes to our uncertain tax positions, that may occur in, but are not necessarily consistent between periods.

Our effective tax rate in the second quarter of fiscal 2019 was 33.1%, compared with our effective tax rate in the second quarter of fiscal 2018 of 25.6%. The 7.5% increase in our effective tax rate was primarily due to the large, one-time impact of the Tax Act in the prior year adjusted for new regulations, partially offset by a reduction in the Federal statutory rate in the current year.

Our effective tax rate was 6.7% in the second quarter of fiscal 2019 year-to-date period, compared with 93.4% in our second quarter of fiscal 2018 year-to-date period. The 86.7% decrease in our effective tax rate was primarily due to the large, one-time impact of the Tax Act in the prior year.