Income Taxes

12 Months Ended

Nov. 26, 2023

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

The Company's income tax expense was $15.6 million, $80.5 million and $26.7 million and the Company's effective income tax rate was 5.9%, 12.4% and 4.6% for the years ended November 26, 2023, November 27, 2022 and November 28, 2021, respectively.

The decrease in the effective tax rate in fiscal year 2023 as compared to fiscal year 2022 was primarily driven by higher benefit from the foreign-derived intangible income deduction on advance royalty and prepaid service income, and no intellectual property transactions in fiscal year 2023.

The increase in the effective tax rate in fiscal year 2022 as compared to fiscal year 2021 was primarily driven by lower tax benefit from the foreign-derived intangible income deduction on actual and deemed royalty income and lower benefit from stock-based compensation exercises in fiscal year 2022, partially offset by a higher benefit from an international intellectual property transaction.

The Company's income tax expense (benefit) differed from the amount computed by applying the U.S. federal statutory income tax rate to income before income taxes as follows:

	Year Ended
	November 26, 2023				November 27, 2022				November 28, 2021
	(Dollars in millions)
Income tax expense (benefit) at U.S. federal statutory rate	$	55.7	21.0	%	$	136.4	21.0	%	$	121.9	21.0	%
State income taxes, net of U.S. federal impact	1.3		0.5	%	14.5		2.2	%	9.0		1.6	%
Change in valuation allowance	(2.0)		(0.8)	%	(0.5)		(0.1)	%	2.6		0.4	%
Impact of foreign operations, net(1)	14.3		5.4	%	29.6		4.6	%	11.5		2.0	%
Foreign-derived intangible income benefit ("FDII")	(55.9)		(21.1)	%	(29.8)		(4.6)	%	(66.0)		(11.4)	%
Reassessment of tax liabilities	(0.6)		(0.2)	%	(7.5)		(1.2)	%	(0.8)		(0.1)	%
International intellectual property transaction	—		—	%	(55.1)		(8.5)	%	(15.1)		(2.6)	%
Stock-based compensation	6.6		2.5	%	(5.0)		(0.8)	%	(36.9)		(6.4)	%
Other, including non-deductible expenses	(3.8)		(1.4)	%	(2.1)		(0.2)	%	0.5		0.1	%
Total	$	15.6	5.9	%	$	80.5	12.4	%	$	26.7	4.6	%

___________

(1)Included in Impact of foreign operations, net are foreign rate differential, Global Intangible Low-Taxed Income ("GILTI") and the tax impact of actual and deemed repatriations of foreign earnings net of foreign tax credits. This also includes an immaterial amount of non-deductible charges related to the Russia-Ukraine crisis in fiscal year 2022.

Impact of foreign operations. The tax expense in fiscal year 2023 decreased as compared to fiscal year 2022 primarily due to a mix of lower foreign earnings, partially offset with a higher U.S. tax cost from actual and deemed distributions.

Foreign-derived intangible income benefit. A higher benefit in fiscal year 2023 as compared to fiscal year 2022 is due to the tax benefit from a larger amount of royalty and service income eligible for FDII deduction.

The U.S. and foreign components of income (loss) before income taxes were as follows:

	Year Ended
	November 26, 2023		November 27, 2022		November 28, 2021
	(Dollars in millions)
Domestic	$	(164.7)	$	171.1	$	197.4
Foreign	429.9		478.5		382.8
Total income before income taxes	$	265.2	$	649.6	$	580.2

Income tax expense (benefit) consisted of the following:

	Year Ended
	November 26, 2023		November 27, 2022		November 28, 2021
	(Dollars in millions)
U.S. Federal
Current	$	14.4	$	15.3	$	12.9
Deferred	(91.5)		46.1		(25.5)
	$	(77.1)	$	61.4	$	(12.6)
U.S. State
Current	$	11.3	$	14.6	$	7.8
Deferred	(9.7)		(6.3)		1.2
	$	1.6	$	8.3	$	9.0
Foreign
Current	$	94.2	$	110.4	$	93.9
Deferred	(3.0)		(99.6)		(63.6)
	$	91.2	$	10.8	$	30.3
Consolidated
Current	$	119.9	$	140.3	$	114.6
Deferred	(104.3)		(59.8)		(87.9)
Total income tax expense	$	15.6	$	80.5	$	26.7

Deferred Tax Assets and Liabilities

The Company's deferred tax assets and deferred tax liabilities were as follows:

	November 26, 2023		November 27, 2022
	(Dollars in millions)
Deferred tax assets
Foreign tax credit carryforwards	$	28.3	$	104.2
State net operating loss carryforwards	10.7		14.9
Foreign net operating loss carryforwards	40.1		47.6
Employee compensation and benefit plans	79.4		97.2
Advance royalties	185.1		87.1
Prepaid services	57.9		—
Accrued liabilities	17.3		16.8
Sales returns and allowances	35.0		31.6
Inventory	31.2		36.9
Intangibles	199.1		172.5
Lease liability	297.6		276.7
Other	74.2		50.8
Total gross deferred tax assets	1,055.9		936.3
Less: Valuation allowance	(47.4)		(49.7)
Deferred tax assets, net of valuation allowance	1,008.5		886.6
Deferred tax liabilities
U.S. Branches	(25.9)		(32.4)
Right of use asset	(262.2)		(244.0)
Total deferred tax liabilities	(288.1)		(276.4)
Total net deferred tax assets	$	720.4	$	610.2

Foreign tax credit carryforwards. The foreign tax credit carryforwards at November 26, 2023, are subject to expiration through 2033 if not utilized.

Foreign net operating loss carryforwards. As of November 26, 2023, the Company had a deferred tax asset of $40.0 million for foreign net operating loss carryforwards of $165.2 million. Of these operating losses, $71.6 million are subject to expiration through 2043. The remaining $93.7 million are available as indefinite carryforwards under applicable tax law.

Valuation Allowance. The following table details the changes in valuation allowance during the year ended November 26, 2023:

	Valuation Allowance at November 27, 2022		Changes in Related Gross Deferred Tax Asset		Change / (Release)		Valuation Allowance at November 26, 2023
	(Dollars in millions)
Foreign tax credit and U.S. state net operating loss carryforwards	$	8.6	$	7.2	$	—	$	15.8
Foreign net operating loss carryforwards and other foreign deferred tax assets	41.0		(7.4)		(2.0)		31.6
	$	49.6	$	(0.2)	$	(2.0)	$	47.4

Unremitted earnings of certain foreign subsidiaries. The Company historically provided for U.S. income taxes on the undistributed earnings of foreign subsidiaries unless they were considered indefinitely reinvested outside the United States. The Company reevaluated its historical indefinite reinvestment assertion as a result of the enactment of the Tax Cuts and Jobs Act (the "Tax Act" enacted on December 22, 2017) and determined that any historical undistributed earnings through November 25, 2018 of foreign subsidiaries, as well as most of the additional undistributed earnings generated through November 2023, are no longer considered to be indefinitely reinvested. The deferred tax liability related to foreign and state tax costs associated with the future remittance of these undistributed earnings of foreign subsidiaries was $8.6 million (included in Other deferred tax assets and liabilities).

Uncertain Income Tax Positions

As of November 26, 2023, the Company’s total gross amount of unrecognized tax benefits was $42.3 million, of which $40.2 million could impact the effective tax rate, if recognized, as compared to November 27, 2022, when the Company’s total gross amount of unrecognized tax benefits was $38.1 million, of which $35.9 million could have impacted the effective tax rate, if recognized.

The following table reflects the changes to the Company's unrecognized tax benefits:

	November 26, 2023		November 27, 2022		November 28, 2021
	(Dollars in millions)
Unrecognized tax benefits beginning balance	$	38.1	$	30.7	$	32.3
Increases related to current year tax positions	4.1		10.2		1.1
Increases related to tax positions from prior years	1.9		0.1		—
Decreases related to tax positions from prior years	—		(0.3)		(1.7)
Settlement with tax authorities	(1.7)		(1.5)		(0.4)
Lapses of statutes of limitation	(0.2)		(0.8)		(0.4)
Other, including foreign currency translation	0.1		(0.3)		(0.2)
Unrecognized tax benefits ending balance	$	42.3	$	38.1	$	30.7

The Company evaluates all domestic and foreign audit issues and believes that it is reasonably possible that total gross unrecognized tax benefits will not significantly change within the next 12 months.

As of November 26, 2023 and November 27, 2022, accrued interest and penalties primarily relating to non-U.S. jurisdictions were $0.4 million and $1.4 million, respectively.

The Company files income tax returns in the United States and in various foreign (including Belgium, Hong Kong, India, Mexico and Canada), state and local jurisdictions. With few exceptions, examinations have been completed by tax authorities or the statute of limitations has expired for United States federal, foreign, state and local income tax returns filed by the Company for years through 2014.

On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 (“IRA”) into law. The IRA contains a number of revisions to the Internal Revenue Code, including a 15% corporate minimum income tax for tax years beginning after December 31, 2022. It also assesses a 1% excise tax on repurchases of corporate stock. While these tax law changes have no immediate effect and are not expected to have a material adverse effect on our results of operations going forward, we will continue to evaluate its impact as further information becomes available.