Income Taxes

12 Months Ended

Jun. 26, 2021

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

Pretax income was as follows:

	For the Year Ended
	June 26, 2021		June 27, 2020		June 29, 2019
	(in thousands)
Domestic pre-tax income	$	69,061	$	72,854	$	103,016
Foreign pre-tax income	860,675		605,242		651,405
Total	$	929,736	$	678,096	$	754,421

The provision (benefit) for income taxes consisted of the following:

	For the Year Ended
	June 26, 2021		June 27, 2020		June 29, 2019
	(in thousands)
Federal
Current	$	86,965	$	1,893	$	(114,494)
Deferred	(2,815)		9,828		12,874
State
Current	321		(3,880)		9,842
Deferred	(866)		552		2,196
Foreign
Current	21,151		15,683		17,562
Deferred	(2,281)		(674)		(1,045)
Total provision (benefit) for income taxes	$	102,475	$	23,402	$	(73,065)

A reconciliation of the Company's Federal statutory tax rate to the Company's effective tax rate is as follows:

	For the Year Ended
	June 26, 2021		June 27, 2020		June 29, 2019
Federal statutory rate	21.0	%	21.0	%	21.0	%
State tax, net of federal benefit	0.1		(0.5)		1.4
General business credits	(1.0)		(1.8)		(0.9)
Effect of foreign operations	(17.5)		(17.1)		(15.8)
Stock-based compensation	1.0		1.0		0.7
Interest accrual for uncertain tax positions	0.4		0.9		1.1
Transition Tax	—		1.0		9.0
Global intangible low taxed income	9.1		7.9		7.4
Settlement of uncertain tax positions	(1.4)		(7.5)		(33.4)
Other	(0.7)		(1.4)		(0.2)
Effective tax rate	11.0	%	3.5	%	(9.7)	%

On December 22, 2017 legislation, commonly referred to as the Tax Cuts and Jobs Act (the “Act”), was enacted. The Act included a one-time tax on accumulated unremitted earnings of our foreign subsidiaries (“Transition Tax”). SEC Staff Accounting Bulletin No. 118 allowed the use of provisional amounts (reasonable estimates) if accounting for the income tax effects of the Act was not completed. Provisional amounts were required to be adjusted within a one-year measurement period from the enactment date of the Act. In the second quarter of fiscal year 2018, the Company recorded a $236.9 million provisional Transition Tax charge. During the measurement period the Company gathered information and analyzed available guidance and in the second quarter of fiscal year 2019 recorded a $22.1 million Transition Tax charge, which increased the Company’s fiscal year 2019 tax rate by 2.9%. As of the end of the second quarter of fiscal year 2019, the accounting for income tax effects of the Act was completed.

In fiscal year 2019, the Company reversed $221.5 million of uncertain tax position reserves and $30.1 million of related interest reserves, net of federal and state benefits, primarily due to the fiscal fourth quarter settlement of an audit of the Company’s fiscal year 2009 through fiscal year 2011 federal corporate income tax returns, which also settled intercompany buy-in license payment issues for fiscal years 2012 through 2019. $140.7 million of fiscal year 2009 through fiscal year 2018 advance tax payments made in June 2018 were applied to additional federal tax liabilities generated by the settlement. The reversal of uncertain tax position reserves for intercompany transfer pricing issues increased accumulated unremitted foreign earnings, which resulted in an additional Transition Tax charge of $47.7 million in the fiscal fourth quarter.

In fiscal year 2020, the Company reversed $40.5 million of uncertain tax position reserves and $10.7 million of related interest reserves, net of federal and state benefits, primarily due to the fiscal fourth quarter settlement of an audit of the Company’s fiscal year 2012 through fiscal year 2014 federal corporate income tax returns. The reversal of uncertain tax position reserves for intercompany transfer pricing issues increased accumulated unremitted foreign earnings, which resulted in an additional Transition Tax charge of $6.5 million in the fiscal fourth quarter.

On June 18, 2019, the U.S. Treasury and Internal Revenue Service (“IRS”) released temporary regulations under Internal Revenue Code ("IRC") Sections 245A and 954(c)(6) (the “Temporary Regulations”), which applied retroactively to intercompany dividends occurring after December 31, 2017. The Temporary Regulations limit the applicability of the foreign personal holding company income (“FPHCI”) look-through exception for certain intercompany dividends received by a controlled foreign corporation. Before application of the retroactive Temporary Regulations, the Company benefited in fiscal years 2018 and 2019 from the FPHCI look-through exception. On August 21, 2020, the U.S. Treasury and IRS released final regulations under IRC Sections 245A and 954(c)(6) (the “Final Regulations”), which generally apply to years ending on or after June 14, 2019. The relevant sections of the Final Regulations are substantially the same as the Temporary Regulations. The Temporary Regulations apply to fiscal year 2018 and the Final Regulations apply to fiscal year 2019 intercompany dividends. The Company does not have any intercompany dividends after fiscal year 2019 that are impacted by relevant sections of the Temporary Regulations or Final Regulations. The Company previously analyzed the relevant Temporary Regulations and concluded that they were not validly issued, a conclusion which the Company determined was not altered by issuance of the Final Regulations. The Company also analyzed the relevant Final Regulations and concluded that they were not validly issued. Therefore, the Company did not account for the effects of the Temporary Regulations or Final Regulations in its results of operations for any prior fiscal period.

The Company received a private letter ruling (“PLR”) from the IRS, dated May 24, 2021, allowing IRC Section 9100 relief to make a late disregarded entity (“DRE”) election for the foreign subsidiary that paid the fiscal year 2018 and 2019 intercompany dividends impacted by relevant sections of the retroactive Temporary Regulations or Final Regulations. Fiscal year 2018 and 2019 intercompany dividends impacted by the retroactive Temporary Regulations or Final Regulations will be disregarded for U.S. tax purposes because of the late DRE election, and therefore will not be subject to the adverse tax consequences generated by relevant sections of the retroactive Temporary Regulations or Final Regulations. The PLR allows the Company to file a late DRE election by September 21, 2021 and is contingent on the Company filing amended fiscal year 2018 – 2020 federal tax returns, by September 21, 2021, to reflect the tax impact of the late DRE election, which is immaterial. The Company filed the late DRE election on July 7, 2021 and intends to file the amended federal tax returns by September 21, 2021.

As of June 26, 2021, the Company's foreign subsidiaries have accumulated undistributed earnings of approximately $166.8 million that are intended to be indefinitely reinvested outside the U.S. No deferred tax liability has been recognized for the repatriation of these earnings. At June 26, 2021, the unrecognized deferred tax liability on these earnings was $28.4 million.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The components of the Company's deferred tax assets and liabilities were as follows:

	June 26, 2021		June 27, 2020
	(in thousands)
Deferred tax assets:
Accrued compensation	$	23,061	$	8,750
Stock-based compensation	10,217		10,476
Net operating loss carryovers	43,559		40,933
Tax credit carryovers	103,222		97,870
Other reserves and accruals not currently deductible for tax purposes	17,221		17,580
Other	12,311		11,626
Total deferred tax assets	209,591		187,235
Deferred tax liabilities:
Fixed assets and intangible assets cost recovery, net	(57,082)		(58,293)
Unremitted earnings of foreign subsidiaries	(16,870)		(9,968)
Other	(5,681)		(3,080)
Total deferred tax liabilities	(79,633)		(71,341)
Net deferred tax assets before valuation allowance	129,958		115,894
Valuation allowance	(143,988)		(135,751)
Net deferred tax assets (liabilities)	$	(14,030)	$	(19,857)

The valuation allowance as of June 26, 2021 and June 27, 2020 primarily relates to certain state and foreign net operating loss carryforwards and certain state tax credit carryforwards. The valuation allowance increased by $8.2 million in fiscal year 2021.

As of June 26, 2021, the Company has $13.3 million of federal net operating loss carryforwards expiring at various dates between fiscal years 2022 and 2033, $39.4 million of state net operating loss carryforwards expiring at various dates through fiscal year 2033, $152.2 million of foreign net operating loss carryforwards with no expiration date, $121.1 million of state tax credit carryforwards with no expiration date, and $6.4 million of state tax credit carryforwards expiring at various dates through fiscal year 2036.

The Company classifies unrecognized tax benefits as (i) a current liability to the extent that payment is anticipated within one year; (ii) a non-current liability to the extent that payment is not anticipated within one year; (iii) a reduction to deferred tax assets to the extent that the unrecognized tax benefit relates to deferred tax assets such as operating loss or tax credit carryforwards or to the extent that operating loss or tax credit carryforwards would be able to offset the additional tax liability

generated by unrecognized tax benefits; or (iv) a reduction to income tax refund receivables, in other assets, to the extent that the unrecognized tax benefit relates to income tax refund claims that have been filed, but not paid.

A reconciliation of the change in gross unrecognized tax benefits, excluding interest, penalties and the federal benefit for state unrecognized tax benefits, is as follows:

	For the Year Ended
	June 26, 2021		June 27, 2020		June 29, 2019
	(in thousands)
Balance as of beginning of year	$	174,275	$	220,397	$	591,458
Tax positions related to current year:
Addition	4,915		3,459		6,974
Tax positions related to prior year:
Addition	1,687		5,626		20,851
Reduction	(7,493)		(48,944)		(236,705)
Settlements	—		(6,263)		(161,847)
Lapses in statutes of limitations	(1,661)		—		(334)
Balance as of end of year	$	171,723	$	174,275	$	220,397

Prior year tax position activity in fiscal year 2019 includes the reversal of $221.5 million of tax reserves, primarily due to the settlement of an audit of the Company’s fiscal year 2009 through fiscal year 2011 federal corporate income tax returns, which also settled intercompany buy-in license payment issues for fiscal year 2012 through fiscal year 2019. Fiscal year 2019 settlements include $140.7 million of fiscal year 2009 through fiscal year 2018 advance tax payments made in June 2018 that were applied to additional federal tax liabilities generated by the federal tax audit settlement. Prior year tax position activity in fiscal year 2020 includes the reversal of $40.5 million of tax reserves, primarily due to the settlement of an audit of the Company’s fiscal year 2012 through fiscal year 2014 federal corporate income tax returns.

The total amount of gross unrecognized tax benefits as of June 26, 2021 that, if recognized, would affect the effective tax rate is $119.4 million. $52.3 million of unrecognized tax benefits would be offset by an increase in the valuation allowance for deferred tax assets and thus would not affect the effective tax rate.

The Company engages in continuous discussions and negotiations with tax authorities regarding tax matters in various jurisdictions. It is reasonably possible that the balance of gross unrecognized tax benefits, including accrued interest and penalties, could decrease up to $108.0 million within the next twelve months due to the completion of federal tax audits, including any administrative appeals. The $108.0 million primarily relates to matters involving federal taxation of international income and cross-border transactions.

The Company reports interest and penalties related to unrecognized tax benefits as a component of income tax expense. The gross amount, before the federal and state benefit, of interest and penalties recognized in income tax expense during the fiscal years ended June 26, 2021, June 27, 2020, and June 29, 2019 was $3.8 million, $(5.9) million and $(30.2) million, respectively, and the total amount of interest and penalties accrued as of June 26, 2021, June 27, 2020, and June 29, 2019 was $29.5 million, $24.6 million, and $31.7 million, respectively.

The Company’s federal corporate income tax returns are audited on a recurring basis by the IRS. In fiscal year 2020, the IRS commenced an audit of the Company’s federal corporate income tax returns for fiscal years 2015 through 2017, which is ongoing. The Company expects that the IRS will commence an audit of the Company’s federal corporate income tax returns for fiscal years 2018 through 2020 in fiscal year 2022.

A summary of the fiscal tax years that remain subject to examination, as of June 26, 2021, for the Company's major tax jurisdictions are as follows:

United States - Federal	2015	-	Forward
Ireland	2017	-	Forward