XML 28 R16.htm IDEA: XBRL DOCUMENT v3.8.0.1
Income Taxes
6 Months Ended
Dec. 30, 2017
Income Tax Disclosure [Abstract]  
Income Taxes [Text Block]
INCOME TAXES

On December 22, 2017 legislation, commonly referred to as the Tax Cuts and Jobs Act (the “Act”), was enacted. The primary impact of the Act in fiscal year 2018 is a reduction of the Company’s federal statutory tax rate from 35% to 28.1% (average of a 35% rate for the first half of fiscal year 2018 and 21% rate for the second half of fiscal year 2018) and taxation of the higher of the accumulated unremitted earnings of the Company’s foreign subsidiaries as of November 2, 2017 or December 31, 2017 (“Repatriation Tax”). Accumulated unremitted earnings are taxed at a rate of 15.5% to the extent of the aggregate foreign cash position of the Company’s foreign subsidiaries and a rate of 8% to the extent that accumulated unremitted earnings exceeds the aggregate foreign cash position. The Act allows the Company to elect to pay the Repatriation Tax in eight annual interest free installments beginning in September 2018, although for accounting purposes the entire tax is recorded in the second quarter of fiscal year 2018. The Act has other provisions that will significantly impact the Company beginning in fiscal year 2019, including a further reduction of the federal statutory tax rate to 21% and provisions that impact taxation of the Company’s international earnings. The Company is still considering the impact of these provisions on its effective tax rate in fiscal year 2019 and future years.

Securities and Exchange Commission Staff Accounting Bulletin No. 118 allows the use of provisional amounts (reasonable estimates) if accounting for the income tax effects of the Act has not been completed when the Company’s financial statements for the second quarter of fiscal year 2018 are issued. Provisional amounts must be adjusted during the measurement period as accounting for the income tax effects of the Act is completed. The measurement period began on December 22, 2017, the enactment date of the Act, and lasts no longer than one year.

In the second quarter of fiscal year 2018 the Company recorded a $236.9 million discrete provisional charge for the Repatriation Tax and a $13.7 million discrete charge to remeasure deferred tax assets and liabilities as of the enactment date of the Act to reflect federal statutory tax rate reductions. To determine the amount of the Repatriation Tax, we must determine the accumulated unremitted earnings of the Company’s foreign subsidiaries and the amount of foreign income tax paid on such earnings.  The U.S. Department of Treasury has issued guidance regarding the Repatriation Tax and we expect that they will issue additional guidance.  Based on the information currently available, we can make a reasonable estimate of the Repatriation Tax and therefore recorded a provisional Repatriation Tax of $236.9 million, however, we are continuing to gather additional information and analyze the available authorities to more precisely compute the amount of the Repatriation Tax.

In the three and six months ended December 30, 2017, the Company recorded an income tax provision of $272.9 million and $299.4 million, respectively, compared to $18.0 million and $45.6 million for the three and six months ended December 24, 2016, respectively. The Company’s effective tax rate for the three and six months ended December 30, 2017 was 137.9% and 79.0%, respectively, compared to 12.1% and 14.5% for the three and six months ended December 24, 2016, respectively.

The Company’s federal statutory tax rate for fiscal year 2018 is 28.1%. The Company’s effective tax rate for the three and six months ended December 30, 2017 was higher than the statutory rate primarily due to a $236.9 million discrete provisional charge for the Repatriation Tax, a $13.7 million discrete charge to remeasure deferred taxes as of the enactment date of the Act, $4.2 million and $8.0 million of discrete interest accruals for unrecognized tax benefits in the three and six months ended December 30, 2017, respectively, partially offset by earnings of foreign subsidiaries, generated primarily by the Company's international operations managed in Ireland, that were taxed at lower rates.

The Company’s federal statutory tax rate for the fiscal year 2017 was 35%. The Company’s effective tax rate for the three and six months ended December 24, 2016 was lower than the statutory rate primarily due to earnings of foreign subsidiaries, generated primarily by the Company's international operations managed in Ireland, that were taxed at lower rates, and a $5.1 million discrete benefit for differences between our fiscal year 2016 tax returns and the tax provision originally recorded, partially offset by stock-based compensation for which no tax benefit is expected and $3.7 million and $6.7 million of discrete interest accruals for unrecognized tax benefits in the three and six months ended December 24, 2016, respectively.

The Company’s federal corporate income tax returns are audited on a recurring basis by the Internal Revenue Service (“IRS”). The IRS has concluded its field examination of the Company’s federal corporate income tax returns for fiscal years 2009 through 2011 and issued an IRS Revenue Agent’s Report in July 2016 that includes proposed adjustments for transfer pricing issues related to cost sharing and buy-in license payments for the use of intangible property by one of the Company’s international subsidiaries. The Company disagrees with the proposed transfer pricing adjustments and related penalties, and in September 2016, the Company filed a protest to challenge the proposed adjustments and requested a conference with the Appeals Office of the IRS. The Company believes that its reserves for unrecognized tax benefits are sufficient to cover any potential assessments that may result from the final resolution of these transfer pricing issues. In fiscal year 2017, the IRS commenced an audit of the Company’s federal corporate income tax returns for fiscal years 2012 through 2014, which is ongoing.