Income Taxes

6 Months Ended

Dec. 28, 2024

Income Tax Disclosure [Abstract]

Income Taxes

Note 12. Income Taxes

Our tax provision for interim periods has generally been determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that arise during the period. However, when a reliable estimate cannot be made, the actual tax or benefit applicable may be reported as a discrete item in the interim period. For the three and six months ended December 28, 2024, we concluded that the use of the discrete method was more appropriate than the annual effective tax rate method, because the estimated annual effective tax rate is not reliable due to its sensitivity to minimal changes in forecasted annual pre-tax earnings. As a result, we have computed our tax provision using the discrete method as though the six-month period was the annual period.

We recorded a tax provision of $18.6 million and $21.8 million for the three and six months ended December 28, 2024, respectively. Our tax provision for the three months ended December 28, 2024 is primarily attributable to the income tax expense from pre-tax earnings, interest on uncertain tax positions and withholding taxes, partially offset by the tax benefit from prior year changes in uncertain tax positions. Our tax provision for the six months ended December 28, 2024 is primarily attributable to the income tax expense from pre-tax earnings, interest on uncertain tax positions, foreign return to provision differences and withholding taxes, partially offset by the tax benefit from prior year changes in uncertain tax positions.

We recorded a tax benefit of $2.4 million and $3.8 million for the three and six months ended December 30, 2023, respectively. Our tax benefit for the three months ended December 30, 2023 includes a discrete tax expense of $3.4 million, primarily related to a shortfall in connection with stock-based compensation vested during the quarter, interest on uncertain tax positions and currency re-measurements. Our tax benefit for the six months ended December 30, 2023 includes a discrete tax expense of $1.6 million, primarily related to a shortfall in connection with stock-based compensation vested during the quarter, foreign return to provision differences and interest on unrecognized tax positions, partially offset by the tax benefit from changes in prior year uncertain tax positions.

Our estimated effective tax rate for the three months ended December 28, 2024 differs from the 21% U.S. statutory rate primarily due to the income tax expense from foreign rate differential, non-deductible stock-based compensation, and current year valuation allowance changes, partially offset by the income tax benefit from various income tax credits.

We regularly assess our ability to realize our deferred tax assets on a quarterly basis and will establish a valuation allowance if it is more-likely-than-not that some portion of the deferred tax assets will not be realized. As of December 28, 2024, we maintain a full valuation allowance on U.S. federal and state and certain foreign deferred tax assets. We will continue to assess the need for a valuation allowance against our remaining deferred tax assets and may increase or decrease our valuation allowance materially in the future.

As of December 28, 2024, we had $95.5 million of unrecognized tax benefits, which, if recognized, would affect the effective tax rate. We are subject to examination of income tax returns by various domestic and foreign tax authorities. The timing of resolution and closure of these tax examinations is highly unpredictable. Although it is possible that certain ongoing tax examinations may be concluded within the next 12 months, we cannot reasonably estimate the impact to tax expense and net income from tax examinations that could be resolved or closed within the next 12 months. Subject to audit timing and uncertainty, we expect the amount of unrecognized tax benefit that would become recognized due to expiration of the statute of limitations and affect the effective tax rate to decrease by $3.7 million over the next 12 months.