Income Taxes

12 Months Ended

Apr. 02, 2022

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

Income (loss) before income taxes consists of the following components (in thousands):

	Fiscal Year
	2022		2021		2020
United States	$	69,938	$	125,362	$	(226,005)
Foreign	1,111,146		682,018		621,094
Total	$	1,181,084	$	807,380	$	395,089

The components of the income tax provision are as follows (in thousands):

	Fiscal Year
	2022		2021		2020
Current tax expense:
Federal	$	(16,886)	$	(11,043)	$	(6,705)
State	(274)		(140)		(93)
Foreign	(98,696)		(80,722)		(65,065)
	(115,856)		(91,905)		(71,863)
Deferred tax (expense) benefit:
Federal	$	(18,398)	$	(35,545)	$	7,826
State	(2,762)		(3,771)		4,603
Foreign	(10,715)		57,452		(1,330)
	(31,875)		18,136		11,099
Total	$	(147,731)	$	(73,769)	$	(60,764)

A reconciliation of the provision for income taxes to income tax expense computed by applying the statutory federal income tax rate to pre-tax income for fiscal years 2022, 2021 and 2020 is as follows (dollars in thousands):

	Fiscal Year
	2022				2021				2020
	Amount		Percentage		Amount		Percentage		Amount		Percentage
Income tax expense at statutory federal rate	$	(248,028)	21.0	%	$	(169,550)	21.0	%	$	(82,969)	21.0	%
(Increase) decrease resulting from:
State (expense)/benefit, net of federal impact	(1,888)		0.2		(743)		0.1		2,605		(0.7)
Tax credits	118,877		(10.1)		92,532		(11.5)		64,017		(16.2)
Effect of changes in income tax rate applied to net deferred tax assets (1)	(25,679)		2.2		22,286		(2.8)		(2,269)		0.6
Foreign tax rate difference	148,932		(12.6)		85,851		(10.6)		75,247		(19.0)
Foreign permanent differences and related items	786		(0.1)		9,026		(1.1)		(5,446)		1.4
Change in valuation allowance	231		(0.1)		(1,232)		0.2		6,438		(1.6)
Expiration of state and foreign attributes	(3,048)		0.3		(1,656)		0.2		(5,165)		1.3
Stock-based compensation	11,148		(0.9)		9,545		(1.2)		(1,707)		0.4
Tax reserve adjustments	(3,262)		0.3		(9,979)		1.2		(13,973)		3.5
U.S. tax on foreign earnings, including GILTI & FDII (2)	(130,874)		11.1		(100,830)		12.5		(81,916)		20.8
Permanent reinvestment assertion	(1,033)		0.1		(8,488)		1.1		(6,814)		1.7
Impairments and acquisition related adjustments	(12,198)		1.0		(919)		0.1		(7,257)		1.8
Other income tax (expense) benefit	(1,695)		0.1		388		(0.1)		(1,555)		0.4
	$	(147,731)	12.5	%	$	(73,769)	9.1	%	$	(60,764)	15.4	%

(1) In fiscal 2022, the Company negotiated an extension to its tax holiday in Singapore, resulting in the revaluation of its deferred tax assets. As a result, the Company recognized an income tax expense of $26.4 million due to the reduced tax rate, in part from a reversal of the tax benefit recognized in fiscal 2021. In fiscal 2021, the Company completed the restructuring of the Cavendish intellectual property, resulting in the recognition of an income tax benefit of $22.1 million in Singapore.

(2) The Global Intangible Low-Taxed Income ("GILTI") and Foreign-Derived Intangible Income ("FDII") provisions became effective for the Company in fiscal 2019, at which time the Company elected to treat taxes due on future GILTI inclusions in U.S. taxable income as current-period expense (the "period cost method").

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the basis used for income tax purposes. The deferred income tax assets and liabilities are measured in each taxing jurisdiction using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

Significant components of the Company’s net deferred income taxes are as follows (in thousands):

	April 2, 2022		April 3, 2021
Deferred income tax assets:
Inventory reserve	$	11,592	$	9,632
Equity compensation	13,085		14,444
Net operating loss carry-forwards	27,024		24,474
Research and other credits	56,735		106,825
Employee benefits	21,104		19,357
Lease liabilities	17,905		15,947
Other deferred assets	10,332		8,662
Total deferred income tax assets	157,777		199,341
Valuation allowance	(36,281)		(36,512)
Total deferred income tax assets, net of valuation allowance	$	121,496	$	162,829
Deferred income tax liabilities:
Amortization and purchase accounting basis difference	$	(73,412)	$	(25,553)
Accumulated depreciation/basis difference	(53,425)		(59,756)
Accrued tax on unremitted foreign earnings	(22,988)		(21,747)
Deferred intercompany revenue (1)	—		(22,284)
Right-of-use assets	(16,591)		(14,663)
Other deferred liabilities	(2,884)		(1,681)
Total deferred income tax liabilities	(169,300)		(145,684)
Net deferred income tax (liability) asset	$	(47,804)	$	17,145
Amounts included in the Consolidated Balance Sheets:
Other non-current assets	$	36,824	$	59,056
Other long-term liabilities	(84,628)		(41,911)
Net deferred income tax (liability) asset	$	(47,804)	$	17,145

(1) In fiscal 2021, the Company completed the intercompany restructuring of the Cavendish intellectual property. Due to this transaction, a portion of revenue recognized by the intercompany seller is taxable in future years. The remaining deferred intercompany revenue was taxed during fiscal 2022.

The Company has recorded a valuation allowance against certain U.S. and foreign deferred tax assets as of April 2, 2022 and April 3, 2021. These valuation allowances were established based upon management's opinion that it is more likely than not (a likelihood of more than 50 percent) that the benefit of these deferred tax assets may not be realized.

The valuation allowance against deferred tax assets decreased by approximately $0.2 million in fiscal 2022. The decrease was comprised of a $1.6 million decrease for the valuation allowance against deferred tax assets for net operating losses and other deferred tax assets at foreign subsidiaries and a $1.4 million increase in the valuation allowance against certain domestic deferred tax assets for net operating losses and credits. At the end of fiscal 2022, a $1.3 million valuation allowance remained against deferred tax assets at foreign subsidiaries, and a $34.9 million valuation allowance remained against domestic deferred tax assets.

The valuation allowance against deferred tax assets increased by $1.2 million in fiscal 2021. The increase was comprised of a $2.1 million increase in the valuation allowance against certain domestic deferred tax assets for net operating losses and credits and a $0.9 million decrease for the valuation allowance against deferred tax assets for net operating losses at foreign subsidiaries. At the end of fiscal 2021, a $2.9 million valuation allowance remained against deferred tax assets at foreign subsidiaries, and a $33.6 million valuation allowance remained against state deferred tax assets.

The valuation allowance against deferred tax assets decreased by $5.2 million in fiscal 2020. The decrease was comprised of a $7.9 million decrease in the valuation allowance against state deferred tax assets for net operating losses and tax credits and a $2.7 million increase for the valuation allowance against deferred tax assets for net operating losses at foreign subsidiaries. At the end of fiscal 2020, a $3.8 million valuation allowance remained against deferred tax assets at foreign subsidiaries, and a $31.5 million valuation allowance remained against state deferred tax assets.

As of April 2, 2022, the Company had federal loss carryovers of approximately $53.3 million that expire in fiscal years 2023 to 2042, if unused, and state losses of approximately $122.2 million that expire in fiscal years 2023 to 2042, if unused. Federal research credits of $110.2 million, and state credits of $65.4 million expire in fiscal years 2031 to 2042 and 2023 to 2042, respectively. The Company had foreign losses of $100.0 million, which expire in fiscal years 2023 to 2032, if unused. The utilization of acquired domestic tax assets is subject to certain annual limitations as required under Section 382 of the Internal Revenue Code of 1986, as amended (the "Code") and similar state income tax provisions.

The Company has continued to expand its operations and increase its investments in numerous international jurisdictions. These activities expose the Company to taxation in multiple foreign jurisdictions. As a result, management has concluded that it is not permanently reinvested on certain earnings of its foreign subsidiaries which have been subject to U.S. federal taxation. The remainder of the Company's untaxed foreign earnings and historic investments will continue to be permanently reinvested to fund working capital requirements and operations abroad. It is not practical to estimate the additional tax that would be incurred, if any, if the remainder of the permanently reinvested earnings were repatriated.

The Company has foreign subsidiaries with tax holiday agreements in Costa Rica and Singapore. The Company’s tax holiday in Costa Rica is set to expire in December 2027. During fiscal 2022, the Company negotiated an extension to its tax holiday in Singapore, now expiring in December 2031. Incentives from these countries are subject to the Company meeting certain employment and investment requirements. Relative to the statutory tax rate, income tax expense decreased by $128.4 million (an impact of approximately $1.17 and $1.15 per basic and diluted share, respectively) in fiscal 2022 and $74.3 million (an impact of approximately $0.65 and $0.64 per basic and diluted share, respectively) in fiscal 2021 as a result of these agreements.

The Company’s gross unrecognized tax benefits totaled $144.1 million as of April 2, 2022, $134.1 million as of April 3, 2021, and $119.2 million as of March 28, 2020. Of these amounts, $137.5 million, $128.7 million and $114.8 million as of April 2, 2022, April 3, 2021 and March 28, 2020, respectively, represent the amounts of unrecognized tax benefits that, if recognized, would impact the effective tax rate in each of the fiscal years.

The Company’s gross unrecognized tax benefits increased from $134.1 million as of April 3, 2021 to $144.1 million as of April 2, 2022, primarily due to increases related to current year tax positions, the effect of provision-to-return adjustments on prior year positions and increases related to business combinations recognized as part of purchase accounting.

A reconciliation of fiscal 2020 through fiscal 2022 beginning and ending amount of gross unrecognized tax benefits is as follows (in thousands):

	Fiscal Year
	2022		2021		2020
Beginning balance	$	134,068	$	119,222	$	103,178
Additions based on positions related to current year	11,826		10,048		10,357
Additions for tax positions in prior years	3,049		6,240		6,484
Reductions for tax positions in prior years	(1,669)		(348)		(69)
Expiration of statute of limitations	(3,219)		(1,094)		(728)
Settlements	—		—		—
Ending balance	$	144,055	$	134,068	$	119,222

It is the Company’s policy to recognize interest and penalties related to uncertain tax positions as a component of income tax expense. During fiscal years 2022, 2021 and 2020, the Company recognized $(5.1) million, $0.8 million and $0.7 million, respectively, of interest and penalties related to uncertain tax positions. Accrued interest and penalties related to unrecognized tax benefits totaled $1.0 million, $6.2 million and $5.4 million as of April 2, 2022, April 3, 2021 and March 28, 2020, respectively.

The unrecognized tax benefits of $144.1 million and accrued interest and penalties of $1.0 million at the end of fiscal 2022 are recorded on the Consolidated Balance Sheet as a $13.8 million other long-term liability, with the balance reducing the carrying value of the gross deferred tax assets.

Due to uncertainties regarding the timing of examinations and the amount of settlements that may be paid, if any, to tax authorities, the Company currently believes it is reasonably possible that only a minimal amount of gross unrecognized tax benefits will be reduced for tax positions taken in prior years within the next 12 months.

Qorvo files a consolidated U.S. federal income tax return, as well as separate and combined income tax returns in numerous state and international jurisdictions. Qorvo’s fiscal 2019 U.S. federal and state tax returns and subsequent tax years remain open for examination, as well as all attributes brought forward into those years. The Company is also subject to examination by various international tax authorities. The tax years subject to examination vary by jurisdiction.