Income Taxes

3 Months Ended

Dec. 28, 2025

Income Tax Disclosure [Abstract]

Income Taxes

Note 3. Income Taxes

We estimate our annual effective income tax rate to be 15% for fiscal 2026, which is lower than the U.S. federal statutory rate, primarily because a significant portion of our income qualifies as foreign-derived deduction eligible income (FDDEI) at a 13% effective tax rate, and due to benefits from the federal research and development tax credit. These benefits are partially offset by changes in the valuation allowance on our federal deferred tax assets (because we expect to be perpetually subject to corporate alternative minimum tax (CAMT)) and foreign currency losses related to our refund claim of Korean withholding tax.

Our effective tax rate for the first quarter of fiscal 2026 was 15%. Our effective tax rate for the first quarter of fiscal 2025 was 13%, which reflected additional FDDEI benefits from the requirement to capitalize research and development expenditures for federal tax purposes (under prior tax law), partially offset by $107 million of net discrete tax charges, which principally related to foreign currency losses related to our refund claim of Korean withholding tax.

During the fourth quarter of fiscal 2025, tax reform legislation included in the One Big Beautiful Bill Act (OBBB) was enacted in the United States. The OBBB included significant corporate tax reforms, including changes to the FDDEI regime and changes allowing domestic research and development expenditures to be deducted as incurred beginning in fiscal 2026 (under prior law such expenditures were capitalized and amortized over five years). The current deduction of domestic research and development expenditures will have a favorable effect on our cash flows from operations due to significantly lower cash tax payments compared to fiscal 2025. However, it adversely affects our effective tax rate by reducing our FDDEI benefits beginning in fiscal 2026. As a result of these changes, we expect to be subject to CAMT, which imposes a 15% federal minimum tax on adjusted financial statement income, reduced by general business credits, including research and development credits. As we expect to perpetually be subject to CAMT, we have established a valuation allowance on substantially all of our existing federal deferred tax assets since the fourth quarter of fiscal 2025. Changes in future taxable income (including less of our income qualifying for preferential treatment as FDDEI), tax laws (including changes to the CAMT rules) and other factors may change our determination regarding whether we will be able to realize our deferred tax assets.