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INCOME TAX EXPENSE
3 Months Ended
Sep. 23, 2018
Income Tax Disclosure [Abstract]  
INCOME TAX EXPENSE INCOME TAX EXPENSE
On December 22, 2017, the “Tax Cuts & Jobs Act” (hereafter referred to as “U.S. tax reform”) was signed into law and was effective for the Company starting in the quarter ended December 24, 2017. U.S. tax reform reduces the U.S. federal statutory tax rate from 35% to 21%, mandates payment of a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, and creates new taxes on certain foreign sourced earnings. The impact on income taxes due to change in legislation is required under the authoritative guidance of Accounting Standards Codification (“ASC”) 740, Income Taxes, to be recognized in the period in which the law is enacted. In conjunction, the SEC issued Staff Accounting Bulletin (“SAB”) 118, which allows for the recording of provisional amounts related to U.S. tax reform and subsequent adjustments related to U.S. tax reform during an up to one-year measurement period that is similar to the measurement period used when accounting for business combinations. The Company has recorded what it believes to be reasonable estimates and the provisional activity is subject to further adjustments under SAB 118. Such adjustments were made during the September 2018 quarter as outlined below, incorporating new information into the estimates; the Company may make further adjustments as new information is made available. In addition, for significant items for which the Company could not make a reasonable estimate, no provisional activity was recorded. The Company will continue to refine the provisional balances and adjustments may be made under SAB 118 during the measurement period as a result of future changes in interpretation, information available, assumptions made by the Company and/or issuance of additional guidance; these adjustments could be material.
The Company recorded an income tax expense of $58.0 million for the three months ended September 23, 2018, which yielded an effective tax rate of approximately 9.8%.
The difference between the U.S. federal statutory tax rate of 21% and the Company’s effective tax rate for the three months ended September 23, 2018 is primarily due to the impact of U.S. tax reform, outlined below, and income in lower tax jurisdictions.
The computation of the one-time transition tax on accumulated unrepatriated foreign earnings was recorded on a provisional basis in the fiscal year ended June 24, 2018 and is therefore subject to potential measurement period adjustments under SAB 118. Such an adjustment was recorded in the Company’s Condensed Consolidated Financial Statements as of the period ended September 23, 2018, incorporating new information into the estimate; the Company may make further adjustments as new information is made available. The adjustment recorded was $36.5 million; revised total estimate is now $919.5 million. The one-time transition tax is based on the Company’s total post-1986 earnings and profits (“E&P”) that was previously deferred from U.S. income taxes. The Company had previously accrued deferred taxes on a portion of this E&P. The Company has not yet completed the calculation of total post-1986 E&P and related income tax pools for its foreign subsidiaries. The Company elected to pay the one-time transition tax over a period of eight years.
Beginning in fiscal year 2019, the Company is subject to the impact of the “Global Intangible Low-Taxed Income” (“GILTI”) provision of U.S. tax reform. The GILTI provision imposes taxes on foreign earnings in excess of a deemed return on tangible assets. The Company has calculated the impact of the GILTI provision on current year earnings and has included the impact in the effective tax rate. In addition, the Company evaluated whether deferred taxes should be recorded in relation to the GILTI provision or if the tax should be recorded in the period in which it occurs. Based on current interpretation, the Company could choose either method as an accounting policy election. The Company made an accounting policy election in the September 2018 quarter to record deferred taxes in relation to the GILTI provision. The Company recorded a provisional benefit for the accounting policy election of $48.0 million. Due to the complexity of the GILTI provision, the Company has not yet finalized
its analysis of GILTI. Therefore, the provisional amount which was recorded related to the accounting policy election is subject to adjustment during the measurement period under SAB 118.
The Company is in various stages of examinations in connection with all of its tax audits worldwide, and it is difficult to determine when these examinations will be settled. It is reasonably possible that over the next 12-month period the Company may experience an increase or decrease in its unrecognized tax benefits as a result of tax examinations or lapses of statute of limitations. The change in unrecognized tax benefits may range up to $31.0 million.