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Income Taxes
 12 Months Ended
Jun. 25, 2022
Income Tax Disclosure [Abstract]  
Income Taxes

13. Income Taxes

Income/(loss) before provision for income taxes for fiscal 2022, 2021, and 2020 consisted of the following (in millions):

 

 

 

2022

 

 

2021

 

 

2020

 

United States

 

$

(44.8

)

 

$

(21.0

)

 

$

(13.5

)

Foreign

 

 

365.3

 

 

 

141.1

 

 

 

172.9

 

Income before provision for income taxes

 

$

320.5

 

 

$

120.1

 

 

$

159.4

 

 

The provision for income taxes for fiscal 2022, 2021, and 2020 consisted of the following (in millions):

 

 

 

2022

 

 

2021

 

 

2020

 

Current tax expense/(benefit)

 

 

 

 

 

 

 

 

 

Federal

 

$

(0.6

)

 

$

4.1

 

 

$

0.8

 

State

 

 

—

 

 

 

0.1

 

 

 

—

 

Foreign

 

 

94.9

 

 

 

36.1

 

 

 

35.4

 

 

 

 

94.3

 

 

 

40.3

 

 

 

36.2

 

Deferred tax expense/(benefit)

 

 

 

 

 

 

 

 

 

Federal

 

 

(21.8

)

 

 

(0.5

)

 

 

(5.8

)

State

 

 

-

 

 

 

-

 

 

 

0.1

 

Foreign

 

 

(7.9

)

 

 

(8.4

)

 

 

8.1

 

 

 

 

(29.7

)

 

 

(8.9

)

 

 

2.4

 

Provision for income taxes

 

$

64.6

 

 

$

31.4

 

 

$

38.6

 

The provision for income taxes differs from the federal statutory rate for fiscal 2022, 2021, and 2020 as follows (in millions):

 

 

 

2022

 

 

2021

 

 

2020

 

Provision at U.S. federal statutory tax rate

 

$

67.3

 

 

$

25.1

 

 

$

33.5

 

State income taxes

 

 

—

 

 

 

0.1

 

 

 

—

 

Non-deductible share-based compensation

 

 

7.9

 

 

 

5.2

 

 

 

3.0

 

(Windfall)/shortfall related to share-based compensation

 

 

(18.1

)

 

 

(3.8

)

 

 

2.1

 

Non-deductible officer compensation

 

 

6.4

 

 

 

6.4

 

 

 

1.9

 

Business credits

 

 

(10.0

)

 

 

(3.8

)

 

 

(6.1

)

Foreign tax differential

 

 

6.4

 

 

 

(6.7

)

 

 

4.9

 

Foreign income inclusion

 

 

3.6

 

 

 

5.2

 

 

 

0.7

 

Deferred taxes on unremitted foreign earnings

 

 

0.7

 

 

 

3.5

 

 

 

—

 

Other differences

 

 

0.4

 

 

 

0.2

 

 

 

(1.4

)

Provision for income taxes

 

$

64.6

 

 

$

31.4

 

 

$

38.6

 

 

 

Non-current deferred tax assets and non-current deferred tax liabilities are included in “Non-current other assets” and “Other long-term liabilities”, respectively, on our consolidated balance sheets.

 

Significant components of our deferred tax assets (liabilities) as of the end of fiscal 2022 and 2021 consisted of the following (in millions):

 

 

 

2022

 

 

2021

 

Deferred tax assets:

 

 

 

 

 

 

Capital loss carryforward

 

$

17.8

 

 

$

0.2

 

Inventory write downs

 

 

2.6

 

 

 

3.9

 

Property and equipment and intangible assets

 

 

11.7

 

 

 

6.0

 

Share-based compensation

 

 

12.0

 

 

 

8.8

 

Nondeductible interest

 

 

5.4

 

 

 

—

 

Business credit carryforward

 

 

62.0

 

 

 

39.1

 

Lease liabilities

 

 

11.2

 

 

 

6.5

 

Net operating loss carryforward

 

 

16.3

 

 

 

7.2

 

Other accruals

 

 

5.6

 

 

 

5.1

 

 

 

 

144.6

 

 

 

76.8

 

Valuation allowance

 

 

(59.0

)

 

 

(32.6

)

 

 

 

85.6

 

 

 

44.2

 

Deferred tax liabilities:

 

 

 

 

 

 

Property and equipment

 

 

(2.0

)

 

 

(0.9

)

Interest

 

 

—

 

 

 

(3.4

)

Right-of-use assets

 

 

(11.5

)

 

 

(6.2

)

Unremitted foreign earnings

 

 

(22.1

)

 

 

(3.5

)

Acquisition intangibles

 

 

(45.8

)

 

 

(29.0

)

 

 

 

(81.4

)

 

 

(43.0

)

Net deferred tax assets

 

$

4.2

 

 

$

1.2

 

 

Realization of deferred tax assets depends on our generating sufficient U.S. and certain foreign taxable income in future years to obtain a benefit from the utilization of those deferred tax assets on our tax returns. Accordingly, the amount of deferred tax assets considered realizable may increase or decrease when we reevaluate the underlying basis for our estimates of future U.S. and foreign taxable income. As of the end of fiscal 2022, a valuation allowance of $59.0 million was maintained to reduce deferred tax assets primarily related to state tax credits and capital losses carryforwards that are not more likely than not to be realized through future taxable income. The net change in the valuation allowance during fiscal 2022 was an increase of $26.4 million, primarily due to an increase of unrealized deferred tax assets associated with the capital loss carryforwards from our DSPG acquisition..

We consider most of the earnings of our foreign subsidiaries as not indefinitely reinvested overseas and have made appropriate provisions for income or withholding taxes, that may result from a future repatriation of those earnings. Further, we determined not to indefinitely reinvest earnings of certain subsidiaries acquired as part of our DSPG acquisition and established a $17.9 million deferred tax liability on the acquisition date balance sheet. As a result, $22.1 million of our deferred tax liability is associated with unremitted foreign earnings, which if remitted would not result in a further provision for income taxes. We continue to indefinitely reinvest $200 million on certain accumulated earnings and outside basis differences primarily related to our DSPG acquisition. If the undistributed earnings and other outside basis differences were recognized in a taxable transaction, the associated foreign tax credits would be expected to reduce the U.S. income tax liability associated with the foreign distribution or the otherwise taxable transaction. As of our fiscal 2022, assuming full utilization of the associated foreign tax credits, the potential net deferred tax liability associated with these undistributed earnings and outside basis differences would be approximately $46 million.

As of the end of fiscal 2022, we had federal, California, and foreign net operating loss carryforwards of approximately $37.7 million, $14.8 million, and $58.2 million, respectively. The federal and California net operating loss will begin to expire in fiscal 2034 and 2029, respectively, if not utilized. Most of our foreign net operating losses have no expiration date. Under current tax law, net operating loss and tax credit carryforwards available to offset future income or income taxes may be limited by statute or upon the occurrence of certain events, including significant changes in ownership.

We had $25.4 million and $50.4 million of federal and state research tax credit carryforwards, respectively, as of the end of fiscal 2022. The federal research tax credit carryforward will begin to expire in 2029 and the state research tax credit can be carried forward indefinitely.

The total liability for gross unrecognized tax benefits related to uncertain tax positions, included in other liabilities in our consolidated balance sheets, increased by $7.2 million from $22.6 million in fiscal 2021 to $29.8 million in fiscal 2022. Of this amount, $19.6 million will reduce the effective tax rate on income from continuing operations, if recognized. A reconciliation of the beginning and ending balance of gross unrecognized tax benefits for fiscal 2022, 2021, and 2020 consisted of the following (in millions):

 

 

 

2022

 

 

2021

 

 

2020

 

Beginning balance

 

$

22.6

 

 

$

20.1

 

 

$

18.9

 

Increase in unrecognized tax benefits related to current year tax
   positions

 

 

7.1

 

 

 

5.5

 

 

 

3.2

 

Increase in unrecognized tax benefits related to prior year tax
   positions

 

 

5.5

 

 

 

—

 

 

 

0.1

 

Remeasurement of unrecognized tax benefits

 

 

(0.5

)

 

 

—

 

 

 

—

 

Decrease due to statute expiration

 

 

(4.9

)

 

 

(3.0

)

 

 

(2.1

)

Ending Balance

 

$

29.8

 

 

$

22.6

 

 

$

20.1

 

Accrued interest and penalties increased by $0.8 million in fiscal 2022 as compared to fiscal 2021 and decreased by $0.2 million in fiscal 2021 as compared to fiscal 2020. Accrued interest and penalties were $2.5 million and $1.7 million as of the end of fiscal 2022 and 2021, respectively. Our policy is to classify interest and penalties, if any, as components of income tax expense.

It is reasonably possible that the amount of liability for unrecognized tax benefits may change within the next 12 months; an estimate of the range of possible changes could result in a decrease of $0.9 million to an increase of $6.9 million. Any prospective adjustments to our unrecognized tax benefits will be recorded as an increase or decrease to income tax expense and cause a corresponding change to our effective tax rate. Accordingly, our effective tax rate could fluctuate materially from period to period.

Our major tax jurisdictions are the U.S., Hong Kong SAR, Japan, Israel and the U.K. From fiscal 2016 onward, we remain subject to examination by one or more of these jurisdictions.

In January 2022, final foreign tax credit regulations, final regulations, were issued by the U.S. Treasury modifying long established rules, including rules used in the determination of whether foreign taxes paid or accrued are creditable against U.S. income taxes. Subsequently, in July 2022, technical corrections and amendments to the final regulations were issued by the U.S. Treasury. These technical corrections and amendments do not change our initial view that certain foreign taxes we incur may not be creditable under the final regulations. We are currently assessing the impact of the final regulations, together with certain research and development capitalization rules, all effective beginning with our fiscal 2023, but anticipate the impact will have a material adverse effect on our fiscal 2023 and future provision for income taxes.