XML 38 R20.htm IDEA: XBRL DOCUMENT
v3.19.2

Income Tax Expense | 12 Months Ended
--- | ---
Jun. 28, 2019
Income Tax Disclosure [Abstract] |
Income Tax Expense | Income Tax Expense Income (loss) Before Taxes The domestic and foreign components of Income (loss) before taxes were as follows:
| 2019 |  | 2018 |  | 2017
| (in millions)
Foreign | $ | (642 | ) |  | $ | 2,398 |  |  | $ | 560 |
Domestic | 355 |  |  | (313 | ) |  | 209 |
Income (loss) before taxes | $ | (287 | ) |  | $ | 2,085 |  |  | $ | 769 |
Income Tax Expense (Benefit) The components of the income tax expense (benefit) were as follows:
| 2019 |  | 2018 |  | 2017
| (in millions)
Current: |  |  |  |  |
Foreign | $ | 181 |  |  | $ | 166 |  |  | $ | 127 |
Domestic - Federal | (91 | ) |  | 1,597 |  |  | 229 |
Domestic - State | 3 |  |  | (5 | ) |  | 4 |
| 93 |  |  | 1,758 |  |  | 360 |
Deferred: |  |  |  |  |
Foreign | 226 |  |  | (39 | ) |  | 56 |
Domestic - Federal | 141 |  |  | (300 | ) |  | (44 | )
Domestic - State | 7 |  |  | (9 | ) |  | — |
| 374 |  |  | (348 | ) |  | 12 |
Income tax expense | $ | 467 |  |  | $ | 1,410 |  |  | $ | 372 |
The 2017 Act includes a broad range of tax reform proposals affecting businesses, including a reduction in the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018, a one-time mandatory deemed repatriation tax on earnings of certain foreign subsidiaries that were previously tax deferred and the creation of new taxes on certain foreign earnings. When initially accounting for the tax effects of the enactment of the 2017 Act, the Company applied the applicable SEC guidance and made a reasonable estimate of the effects on the Company’s existing deferred tax balances and the one-time mandatory deemed repatriation tax required by the 2017 Act. As the Company finalized the accounting for the tax effects of the enactment of the 2017 Act during the one-year measurement period permitted by applicable SEC guidance, the Company reflected adjustments to the recorded provisional amounts. During the second quarter of fiscal 2019, the Company completed its accounting for the tax effects of the enactment of the 2017 Act. Although the U.S. Treasury and the IRS have issued tax guidance on certain provisions of the 2017 Act since the enactment date, the Company anticipates the issuance of additional regulatory and interpretive guidance. The Company applied a reasonable interpretation of the law along with any available guidance in finalizing its accounting for the tax effects of the 2017 Act. However, any additional regulatory or interpretive guidance would constitute new information which may require further refinements to its estimates in future periods. Additional information regarding the significant provisions of the 2017 Act that impacted the Company is provided below. Re-measurement of deferred taxes The Company recorded a provisional income tax benefit of $65 million for the year ended June 29, 2018, which related to the re-measurements of the Company’s deferred tax balances and was based primarily on the rates at which the deferred tax assets and liabilities are expected to reverse in the current and future fiscal years, which were generally 29% and 22%, respectively. As of December 28, 2018, the Company had finalized the accounting for the tax effects related to the re-measurements of the Company’s deferred tax balances with no material change. During the third quarter of fiscal 2019, the Company finalized the filing of its U.S. federal income tax return for the year ended June 29, 2018, which resulted in an additional income tax benefit of $5 million for the re-measurement of the Company’s deferred tax assets and liabilities that are expected to reverse at 22%. Mandatory deemed repatriation tax In connection with the transition from a global to a territorial U.S. tax system, companies are required to pay a mandatory deemed repatriation tax. For the year ended June 29, 2018, the Company recorded a provisional amount for the mandatory deemed repatriation tax liability of $1.57 billion for foreign subsidiaries. The calculation of the mandatory deemed repatriation tax liability is based upon post-1986 earnings and profits. In addition, the mandatory deemed repatriation tax is based on the amount of foreign earnings held in cash and other specified assets, which are taxed at 15.5% and 8%, respectively, and is payable over an 8-year period. The Company had finalized the accounting for the tax effects of the mandatory deemed repatriation tax during the one-year measurement period permitted by applicable SEC guidance. During the first half of fiscal 2019, the Company reduced its mandatory deemed repatriation tax liability by $302 million, of which $250 million was for the utilization of recorded deferred tax assets related to existing tax attributes. The utilization of the deferred tax assets was a reclassification that did not have an impact on the Company’s income tax provision for the year ended June 28, 2019. The remaining $52 million reduction to the mandatory deemed repatriation tax primarily related to the Company’s decision to no longer carry forward its 2018 operating loss and, instead, apply it against the mandatory deemed repatriation tax. The $52 million benefit resulted from utilizing the fiscal year 2018 operating losses at a 28% tax rate on the Company’s 2018 tax return as compared to the carryforward tax rate of 21%. The Company also finalized its post-1986 earnings and profits calculation along with the amount of earnings held in cash and other specified assets and increased its mandatory deemed repatriation tax liability by $95 million. Subsequent to the one-year measurement period, the Company finalized the filing of its U.S. federal income tax return for the year ended June 29, 2018, which resulted in a decrease to its mandatory repatriation tax liability by $105 million, of which $41 million related to the utilization of recorded deferred tax assets related to existing tax attributes. The utilization of the deferred tax assets resulted in an income tax benefit of $19 million for the third quarter of fiscal 2019 with the remaining amount being a reclassification that did not have an impact on the Company’s income tax provision. The remaining $64 million benefit is attributable primarily to the issuance by the IRS of final regulations on January 15, 2019 with respect to the mandatory deemed repatriation tax liability. These regulations favorably impacted certain positions previously taken with respect to amounts recorded in the Company’s Consolidated Financial Statements. The Company’s estimate of the mandatory deemed repatriation tax liability after these refinements was $1.25 billion, excluding a $146 million liability for unrecognized tax benefits. During the one-year measurement period, the Company evaluated the expected manner of recovery to determine whether or not to continue to assert indefinite reinvestment on a part or all the foreign undistributed earnings. This required the Company to re-evaluate its existing short and long-term capital allocation policies in light of the 2017 Act and calculate the tax cost that is incremental to the deemed repatriation tax of repatriating cash to the U.S. The provisional tax expense recorded by the Company as of June 28, 2018 was based upon an assumption at the time that all of its foreign undistributed earnings would be indefinitely reinvested. During the second quarter of fiscal 2019, the Company finalized the accounting for the tax effects of the mandatory deemed repatriation tax on its indefinite reinvestment assertion. At that time, the Company removed its indefinite reinvestment assertion with the intention to repatriate all of its foreign undistributed earnings. As a result, the Company recorded a foreign income tax expense of $253 million related to foreign withholding taxes partially offset by foreign tax credits of $55 million. In addition, a state income tax expense of $30 million was recorded, partially offset by a decrease to the Company’s valuation allowance of $21 million. The Company’s decision to change its indefinite reinvestment assertion was based on interpretative guidance issued by the IRS at the time related to the ordering and taxation of a repatriation of the Company’s foreign undistributed earnings. During the fourth quarter of fiscal 2019, the IRS issued additional interpretative guidance affecting the taxation of a certain portion of the Company’s foreign undistributed earnings, which could result in additional federal tax. After consideration of this additional interpretative guidance, the Company made the determination that it no longer intends to repatriate this portion of its foreign undistributed earnings and did not establish an accrual for the potential related federal tax liability of $1.25 billion. Deferred taxes on foreign earnings As a result of the shift to a territorial system for U.S. taxation, the new minimum tax on certain foreign earnings (“global intangible low-tax income”) provision of the 2017 Act imposes a tax on foreign earnings and profits in excess of a deemed return on tangible assets of foreign subsidiaries. This provision became effective for the Company with the fiscal year ended June 28, 2019. During the one-year measurement period permitted by applicable SEC guidance, the Company evaluated its accounting policy regarding whether to make an election to account for the effects of this provision either as a component of future income tax expense in the period in which the tax arises or as a component of deferred taxes on the related investments. Accordingly, no deferred tax assets and liabilities were established for timing differences between foreign U.S. GAAP income and U.S. taxable income that would be expected to reverse under the new minimum tax in future years for the year ended June 29, 2018. Subsequent to June 29, 2018, the Company made the election to account for the effects of the global intangible low-tax income provision as a component of future income tax expense in the period in which the tax arises. There was no change in the Company’s accounting as a result of this election. Deferred Taxes Temporary differences and carryforwards, which give rise to a significant portion of deferred tax assets and liabilities were as follows:
| June 28, 2019 |  | June 29, 2018
| (in millions)
Deferred tax assets: |  |  |
Sales related reserves and accrued expenses not currently deductible | $ | 48 |  |  | $ | 53 |
Accrued compensation and benefits not currently deductible | 124 |  |  | 145 |
Net operating loss carryforward | 285 |  |  | 443 |
Business credit carryforward | 410 |  |  | 448 |
Long-lived assets | 144 |  |  | 161 |
Other | 135 |  |  | 118 |
Total deferred tax assets | 1,146 |  |  | 1,368 |
Deferred tax liabilities: |  |  |
Long-lived assets | (413 | ) |  | (491 | )
Unremitted earnings of certain non-U.S. entities | (220 | ) |  | (5 | )
Other | (32 | ) |  | (43 | )
Total deferred tax liabilities | (665 | ) |  | (539 | )
Valuation allowances | (619 | ) |  | (614 | )
Deferred tax assets (liabilities), net | $ | (138 | ) |  | $ | 215 |
The change from a net deferred tax asset to a net deferred tax liability is primarily due to a decrease in the deferred tax asset for the utilization of U.S. net operating losses and business credits of $250 million. These assets were utilized to reduce the mandatory repatriation tax liability. In addition, there was an increase in the deferred tax liability with respect to the decision to change the Company’s indefinite reinvestment assertion on its foreign undistributed earnings of $228 million. These amounts are offset in part by the 2019 reversal of the deferred tax liability associated with purchase accounting intangibles of $78 million. The net deferred tax asset valuation allowance increased by $5 million and $96 million in 2019 and 2018, respectively. The valuation allowance increase in 2019 is primarily attributable to the current year generation of state tax credits, net of current year utilization of $23 million, which the Company does not anticipate being able to utilize in future periods. This increase is partially offset by a valuation allowance decrease attributable to a change in the indefinite reinvestment assertion of $21 million for state tax credits, which the Company now anticipates being able to utilize in future periods. The valuation allowance increase in 2018 is primarily attributable to the 2018 generation of foreign net operating loss carryforwards of $54 million and state tax credits of $33 million, which the Company does not anticipate being able to utilize in future periods. The assessment of valuation allowances against deferred tax assets requires estimations and significant judgment. The Company continues to assess and adjust its valuation allowance based on operating results and market conditions. After weighing both the positive and negative evidence available, including, but not limited to, earnings history, projected future outcomes, industry and market trends and the nature of each of the deferred tax assets, the Company determined that it is able to realize most of its deferred tax assets with the exception of certain loss and credit carryforwards. Effective Tax Rate Under the 2017 Act, the reduction of the U.S. federal corporate tax rate from 35% to 21% is effective January 1, 2018, requiring companies to use a blended rate for their fiscal 2018 tax year by applying a pro-rated percentage of the number of days before and after the January 1, 2018 effective date. This results in the use of an estimated annual effective tax rate of approximately 21% for the Company’s U.S. federal corporate tax rate for fiscal year 2018. For fiscal year 2019 and beyond, the Company will utilize the enacted U.S. federal corporate tax rate of 21%. Reconciliation of the U.S. Federal statutory rate to the Company’s effective tax rate is as follows:
| 2019 |  | 2018 |  | 2017
U.S. Federal statutory rate | 21 | % |  | 28 | % |  | 35 | %
Tax rate differential on international income | (75 | ) |  | (34 | ) |  | (27 | )
Tax effect of U.S. foreign income inclusion | (7 | ) |  | 1 |  |  | 4 |
Tax effect of U.S. foreign minimum tax | (38 | ) |  | — |  |  | — |
Tax effect of U.S. foreign derived intangible income | 11 |  |  | — |  |  | — |
Tax effect of U.S. non-deductible stock-based compensation | (1 | ) |  | 1 |  |  | 1 |
Tax effect of U.S. permanent differences | (3 | ) |  | (1 | ) |  | (1 | )
State income tax, net of federal tax | — |  |  | — |  |  | 1 |
Impact of 2017 Act: |  |  |  |  |
One-time mandatory deemed repatriation tax | (41 | ) |  | 75 |  |  | — |
Re-measurement of deferred taxes | 2 |  |  | (3 | ) |  | — |
Change in valuation allowance | (2 | ) |  | 5 |  |  | 29 |
Unremitted earnings of certain non-U.S. entities | (79 | ) |  | — |  |  | 5 |
Tax related to SanDisk integration | — |  |  | — |  |  | 12 |
Foreign income tax credits | 23 |  |  | — |  |  | — |
Federal R&D credits | 24 |  |  | (4 | ) |  | (12 | )
Other | 2 |  |  | — |  |  | 1 |
Effective tax rate | (163 | )% |  | 68 | % |  | 48 | %
Tax Holidays and Carryforwards A substantial portion of the Company’s manufacturing operations in Malaysia, the Philippines and Thailand operate under various tax holidays and tax incentive programs which expired or will expire in whole or in part at various dates during fiscal years 2020 through 2030. Certain of the holidays may be extended if specific conditions are met. The net impact of these tax holidays and tax incentives was an increase to the Company’s net earnings by $393 million, or $1.33 per diluted share, $519 million, or $1.69 per diluted share, and $467 million, or $1.58 per diluted share, in 2019, 2018, and 2017, respectively. As of June 28, 2019, the Company had varying amounts of federal and state NOL/tax credit carryforwards that do not expire or, if not used, expire in various years. Following is a summary of the Company’s federal and state NOL/tax credit carryforwards and the related expiration dates of these NOL/tax credit carryforwards:
Jurisdiction | NOL/Tax Credit Carryforward Amount |  | Expiration
| (in millions) |  |
Federal NOL (Pre 2017 Act Generation) | $ | 700 |  |  | 2021 to 2037
Federal NOL (Post 2017 Act Generation) | — |  |  | No expiration
State NOL | 619 |  |  | 2021 to 2038
Federal tax credits | 59 |  |  | 2020 to 2034
State tax credits | 578 |  |  | No expiration
The federal and state NOLs and credits relating to various acquisitions are subject to limitations under Sections 382 and 383 of the Internal Revenue Code. The Company expects the total amount of federal and state NOLs ultimately realized will be reduced as a result of these provisions by $128 million and $361 million, respectively. The Company expects the total amount of federal and state credits ultimately realized will be reduced as a result of these provisions by $28 million and $2 million, respectively. As of June 28, 2019, the Company had varying amounts of foreign NOL carryforwards that do not expire or, if not used, expire in various years, depending on the country. The major jurisdictions that the Company receives foreign NOL carryforwards and the related amounts and expiration dates of these NOL carryforwards are as follows:
Jurisdiction |  | NOL Carryforward Amount |  | Expiration
|  | (in millions) |  |
Japan |  | $ | 132 |  |  | 2024 to 2026
Belgium |  | 105 |  |  | No expiration
China |  | 133 |  |  | 2023 to 2024
Spain |  | 52 |  |  | No expiration
Uncertain Tax Positions With the exception of certain unrecognized tax benefits that are directly associated with the tax position taken, unrecognized tax benefits are presented gross in the Consolidated Balance Sheets. Interest and penalties related to unrecognized tax benefits are recognized in liabilities recorded for uncertain tax positions and are recorded in the provision for income taxes. Accrued interest and penalties included in the Company’s liability related to unrecognized tax benefits as of June 28, 2019, June 29, 2018 and June 30, 2017 was $123 million, $110 million and $89 million, respectively. The following is a tabular reconciliation of the total amounts of unrecognized tax benefits excluding accrued interest and penalties:
| 2019 |  | 2018 |  | 2017
| (in millions)
Unrecognized tax benefit, beginning balance | $ | 551 |  |  | $ | 522 |  |  | $ | 491 |
Gross increases related to current year tax positions | 172 |  |  | 38 |  |  | 35 |
Gross increases related to prior year tax positions | 8 |  |  | 30 |  |  | 3 |
Gross decreases related to prior year tax positions | (24 | ) |  | (9 | ) |  | (8 | )
Settlements | (1 | ) |  | (19 | ) |  | (8 | )
Lapse of statute of limitations | (11 | ) |  | (11 | ) |  | (19 | )
Acquisitions | — |  |  | — |  |  | 28 |
Unrecognized tax benefit, ending balance | $ | 695 |  |  | $ | 551 |  |  | $ | 522 |
Included within long-term liabilities in the Consolidated Balance Sheets are the Company’s payable related to unrecognized tax benefits including accrued interest and penalties of $699 million, $508 million, and $493 million as of June 28, 2019, June 29, 2018 and June 30, 2017, respectively. The entire balance of the gross unrecognized tax benefits as of June 28, 2019, June 29, 2018 and June 30, 2017, if recognized, would affect the effective tax rate. The Company files U.S. Federal, U.S. state and foreign tax returns. For both federal and state tax returns, with few exceptions, the Company is subject to examination for fiscal years 2013 through 2018. The Company is no longer subject to examination by the IRS for periods prior to 2012, although carry forwards generated prior to those periods may still be adjusted upon examination by the IRS or state taxing authority if they either have been or will be used in a subsequent period. In the major foreign jurisdictions, the Company could be subject to examination in China for calendar years 2009 through 2018, in Ireland for calendar years 2014 through 2018, in India for fiscal years 2014 through 2018, in Israel for fiscal years 2014 through 2018 and in Japan for fiscal years 2012 through 2018. The IRS previously completed its field examination of the Company’s federal income tax returns for fiscal years 2008 through 2012 and proposed certain adjustments. As previously disclosed, the Company received Revenue Agent Reports from the IRS for fiscal years 2008 through 2009, proposing adjustments relating to transfer pricing with the Company’s foreign subsidiaries and intercompany payable balances. The Company disagrees with the proposed adjustments and in September 2015, filed a protest with the IRS Appeals Office and received the IRS rebuttal in July 2016. The Company and the IRS Appeals Office did not reach a settlement on the disputed matters. On June 28, 2018, the IRS issued a statutory notice of deficiency with respect to the disputed matters for fiscal years 2008 through 2009, seeking to increase the Company’s U.S. taxable income by an amount that would result in additional federal tax through fiscal year 2009 totaling approximately $516 million, subject to interest. The Company filed a petition with the U.S. Tax Court in September 2018. On December 10, 2018, the IRS issued a statutory notice of deficiency with respect to fiscal years 2010 through 2012, seeking to increase the Company’s U.S. taxable income by an amount that would result in additional federal tax for fiscal years 2010 through 2012 totaling approximately $549 million, subject to interest. Approximately $535 million of the total additional federal tax for fiscal years 2010 through 2012 relates to proposed adjustments for transfer pricing with the Company’s foreign subsidiaries, intercompany payable balances and the utilization of certain tax attributes. The Company filed a petition with the U.S. Tax Court in March 2019. The Company believes that its tax positions are properly supported and will vigorously contest the position taken by the IRS. The Company believes that adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax examinations cannot be predicted with certainty. If any issues addressed in the Company’s tax examinations are resolved in a manner not consistent with management’s expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs. As of June 28, 2019, it was not possible to estimate the amount of change, if any, in the unrecognized tax benefits that is reasonably possible within the next twelve months. Any significant change in the amount of the Company’s liability for unrecognized tax benefits would most likely result from additional information or settlements relating to the examination of the Company’s tax returns.

X
- References No definition available. + Details
Name: | us-gaap_IncomeTaxDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
Name: | us-gaap_IncomeTaxDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration