Income Taxes

9 Months Ended

Mar. 29, 2020

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The change in our effective tax rate for the three months ended March 29, 2020 was primarily due to impacts from the Coronavirus Aid, Relief and Economic Security Act ("CARES Act"). In general, the variation between the Company's effective income tax rate and the U.S. statutory rate of 21% is primarily due to: (i) changes in the Company’s valuation allowances against deferred tax assets in the U.S. and Luxembourg, (ii) projected income for the full year derived from international locations with differing tax rates than the U.S. and (iii) projected tax credits generated.

On March 27, 2020, the U.S. government enacted the CARES Act, which contained changes to the U.S. tax law that included, among other items, the temporary removal of the taxable income limitation on the utilization of net operating losses, the ability for a five-year carryback of certain net operating losses, and the adjustment to the carryforward period of certain net operating losses. For the three and nine months ended March 29, 2020, the Company recognized a net $5.1 million discrete tax benefit due to the net operating loss provisions of the CARES Act.

The Company assesses all available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets by jurisdiction. The Company has concluded that it is necessary to recognize a full valuation allowance against its U.S. and Luxembourg deferred tax assets, as of the nine months ended March 29, 2020.

As of June 30, 2019, the U.S. valuation allowance was $177.6 million. During the nine months ended March 29, 2020, the Company decreased the U.S. valuation allowance by $0.6 million primarily due to impacts from the CARES Act and the expiration of certain statutes of limitations on the Company's liability for unrecognized tax benefits. As of June 30, 2019, the Luxembourg valuation allowance was $7.6 million. During the nine months ended March 29, 2020, the Company increased this valuation allowance by $2.0 million due to year-to-date losses in Luxembourg.

U.S. GAAP requires a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is cumulatively more than 50% likely to be realized upon ultimate settlement.

As of June 30, 2019, the Company's liability for unrecognized tax benefits was $8.2 million. During the nine months ended March 29, 2020, the Company decreased its unrecognized tax benefits by $0.7 million primarily due to the expiration of statute requirements. As a result, the total liability for unrecognized tax benefits as of March 29, 2020 was $7.5 million. If any portion of this $7.5 million is recognized, the Company will then include that portion in the computation of its effective tax rate. Although the ultimate timing of the resolution and/or closure of audits is highly uncertain, the Company believes it is reasonably possible that $0.5 million of gross unrecognized tax benefits will change in the next 12 months as a result of statute requirements or settlement with tax authorities.

The Company files U.S. federal, U.S. state and foreign tax returns. For U.S. federal purposes, the Company is generally no longer subject to tax examinations for fiscal years prior to 2017. For U.S. state tax returns, the Company is generally no longer subject to tax examinations for fiscal years prior to 2016. For foreign purposes, the Company is generally no longer subject to examination for tax periods prior to 2009. Certain carryforward tax attributes generated in prior years remain subject to examination, adjustment and recapture.