Income Taxes

12 Months Ended

Mar. 28, 2020

The provision for income taxes consists of the following:



	Years Ended
(In thousands)	March 28, 2020			March 30, 2019			March 31, 2018
Federal:
Current	$	(2,056	)	$	90,674		$	565,765
Deferred	11,527			(30,746		)	(370,893		)
	9,471			59,928			194,872
State:
Current	5,480			4,623			2,520
Deferred	9,289			2,545			7,813
	14,769			7,168			10,333
Foreign:
Current	26,915			16,282			23,483
Deferred	(9,892		)	(4,796		)	(1,290		)
	17,023			11,486			22,193
Total	$	41,263		$	78,582		$	227,398

The domestic and foreign components of income before income taxes were as follows:



(In thousands)	March 28, 2020		March 30, 2019		March 31, 2018
Domestic	$	145,339	$	173,082	$	21,198
Foreign	688,645		795,250		670,181
Income before income taxes	$	833,984	$	968,332	$	691,379

On December 22, 2017, the TCJA was enacted into law. It made significant tax law changes and modifications including the reduction of the U.S. federal corporate income tax rate from 35% to 21%, the requirement for companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and the creation of new taxes on certain foreign-sourced earnings. Some provisions of the TCJA began to impact the Company in fiscal 2018, while other provisions impacted the Company beginning in fiscal 2019.

SAB 118 allows companies to record provisional amounts and recognize the effect of the tax law changes during a measurement period. The Company recorded provisional income tax expense of $214.7 million in its fiscal 2018 results. During fiscal 2019, the Company recorded income tax expense of $2.4 million as measurement period adjustments to the provisional amounts recorded in fiscal 2018. The measurement period adjustments include the impact of the Company's accounting policy election to recognize deferred taxes for temporary basis differences that are expected to reverse as GILTI income in future years. The measurement period ended in the third quarter of fiscal 2019.

The Company recorded excess tax benefits associated with stock-based compensation of $37.4 million, $14.2 million, and $21.5 million in the provision for income taxes during fiscal 2020, 2019, and 2018 respectively.

As of March 28, 2020, the Company had federal net operating loss carryforwards of $195.8 million from acquisition activity. The net operating loss carryforwards have expirations between fiscal 2021 and fiscal 2037 and some are subject to change of ownership limitations provided by the Internal Revenue Code. As of March 28, 2020, the Company had state net operating loss carryforwards of $186.5 million primarily from acquisition activity. The state net operating loss carryforwards include $175.6 million which is not likely to be recovered and has been reduced by a valuation allowance.

As of March 28, 2020, the Company had state research tax credit carryforwards of approximately $215.3 million. The credits have no expiration date. Some of the state credit carryforwards are subject to change of ownership limitations provided by state provisions similar to that of the Internal Revenue Code. The state credit carryforwards include $172.6 million that is not likely to be recovered and has been reduced by a valuation allowance. As of March 28, 2020, the Company had foreign credit carryforwards of $2.3 million, all of which is not likely to be recovered and has been reduced by a valuation allowance.

The provision for income taxes reconciles to the amount derived by applying the federal statutory income tax rate to income before provision for taxes as follows:



	Years Ended
(In thousands)	March 28, 2020			March 30, 2019			March 31, 2018
Income before provision for taxes	$	833,984		$	968,332		$	691,379
Federal statutory tax rate	21.0		%	21.0		%	31.5		%
Computed expected tax	175,137			203,350			217,784
State taxes, net of federal benefit	16,085			6,379			9,785
Foreign earnings at lower tax rates	(69,103		)	(98,387		)	(188,174		)
Tax credits	(35,846		)	(31,679		)	(19,708		)
Transition tax	—			21,063			208,523
Deferred tax remeasurement	—			—			21,834
Excess benefits from stock-based compensation	(37,428		)	(14,196		)	(21,520		)
Fiscal 2014 amended returns*	(9,398		)	—			—
Other	1,816			(7,948		)	(1,126		)
Provision for income taxes	$	41,263		$	78,582		$	227,398

*Interest income on refunds and release of unrecognized tax benefits for related research credits. Refer to gross unrecognized tax benefits discussion below for more detail.

The Company has manufacturing operations in Singapore where the Company has been granted "Pioneer Status" that is effective through fiscal 2021. The Pioneer Status reduces the Company's tax on the majority of Singapore income from 17% to zero percent. During the quarter ended September 28, 2019, the Company received awards from the Singapore Economic Development Board for a Development and Expansion Incentive that will reduce its local tax on Singapore income from a statutory rate of 17% to 5% for the fiscal years 2022 through 2031. The benefits of Pioneer Status in Singapore for fiscal 2020, fiscal 2019 and fiscal 2018 were approximately $42.3 million ($0.17 per diluted share), $48.0 million ($0.19 per diluted share), and $61.5 million ($0.24 per

diluted share), respectively. The tax effect of operations in low tax jurisdictions on the Company's overall tax rate is reflected in the table above.

The major components of deferred tax assets and liabilities consisted of the following:



(In thousands)	March 28, 2020			March 30, 2019
Deferred tax assets:
Stock-based compensation	$	18,600		$	18,514
Accrued expenses	12,159			7,744
Tax credit carryforwards	172,998			155,036
Deferred compensation plan	28,394			27,186
Low income housing and other investments	2,880			6,366
GILTI deferred taxes	24,306			38,410
Tax loss carryforwards	57,969			—
Intangible assets	1,755			—
Operating leases	11,317			—
Other	7,465			22,997
Subtotal	337,843			276,253
Valuation allowance	(150,907		)	(118,773		)
Total deferred tax assets	186,936			157,480
Deferred tax liabilities:
Unremitted foreign earnings	(8,432		)	(5,142		)
Intangible assets	—			(20,775		)
Distributor price adjustments	(7,540		)	(11,464		)
Operating leases	(11,317		)	—
Other	(12,499		)	(4,975		)
Total deferred tax liabilities	(39,788		)	(42,356		)
Total net deferred tax assets	$	147,148		$	115,124

Long-term deferred tax assets of $149.4 million and $126.7 million as of March 28, 2020 and March 30, 2019, respectively, were included in other assets on the consolidated balance sheet.

As of March 28, 2020 and March 30, 2019, gross deferred tax assets were offset by valuation allowances of $150.9 million and $118.8 million, respectively, which were primarily associated with federal and state net operating losses and state tax credit carryforwards.

The aggregate changes in the balance of gross unrecognized tax benefits were as follows:



(In thousands)	March 28, 2020			March 30, 2019
Balance as of beginning of fiscal year	$	147,616		$	125,148
Increases in tax positions for prior years	4,481			18,156
Decreases in tax positions for prior years	(90,521		)	(666		)
Increases in tax positions for current year	27,524			5,132
Settlements	—			—
Lapses in statutes of limitation	(260		)	(154		)
Balance as of end of fiscal year	$	88,840		$	147,616

The Company’s total gross unrecognized tax benefits decreased by $58.8 million during fiscal 2020. Of the net change in uncertain tax benefits during the year, there was an $85.5 million decrease related to an additional deduction claimed on federal and state

amended tax returns (refund claim) for fiscal 2014 for redemption premium paid in that year in connection with the early redemption of the Company’s 3.125% Junior Convertible debenture due March 15, 2037. During the third quarter of fiscal 2020, the Company received written notification from the Internal Revenue Service that the Joint Committee on Taxation had completed its review of the Company's refund claim and had taken no exception. The tax benefit of the refund claim, net of state tax adjustments, of $81.9 million was recognized as an increase to additional paid-in capital in the third quarter of fiscal 2020. The decrease in gross unrecognized tax benefits was partially offset by new gross unrecognized tax benefits associated with acquisition and post-acquisition restructuring activities. If the remaining balance of $88.8 million and $147.6 million of unrecognized tax benefits as of March 28, 2020 and March 30, 2019, respectively, were realized in a future period, it would result in a tax benefit of $47.4 million and $35.3 million, respectively, thereby reducing the effective tax rate.

The Company's policy is to include interest and penalties related to income tax liabilities within the provision for income taxes on the consolidated statements of income. The balances of accrued interest and penalties recorded in the consolidated balance sheets and the amounts of interest and penalties included in the Company's provisions for income taxes were not material for any period presented.

The statutes of limitations have closed for U.S. federal income tax purposes for years through fiscal 2014 as well as fiscal 2016, for U.S. state income tax purposes for years through fiscal 2010, and for Ireland income tax purposes for years through fiscal 2015.

The Company believes its provision for unrecognized tax benefits is adequate for adjustments that may result from tax audits. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in the Company's tax audits 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. It is reasonably possible that changes to the Company's unrecognized tax benefits could be significant in the next twelve months due to tax audit settlements and lapses of statutes of limitation. As a result of uncertainties regarding tax audits and their possible outcomes, an estimate of the range of increase or decrease that could occur in the next twelve months cannot be made at this time.

On July 27, 2015, the United States Tax Court (Tax Court) issued an opinion in Altera Corp. v. Commissioner, and, in a 15-0 decision, concluded that related parties in a cost sharing arrangement are not required to share expenses related to stock-based compensation. The Commissioner appealed the Tax Court decision to the Ninth Circuit Court of Appeals (Ninth Circuit). The Ninth Circuit overturned the Tax Court’s decision in an opinion issued on July 24, 2018, but subsequently withdrew it. After rehearing the arguments on October 16, 2018, the Ninth Circuit issued a subsequent opinion on June 7, 2019. In a 2-1 decision, the Ninth Circuit overturned the Tax Court’s decision. On July 22, 2019, Altera filed a petition for an en banc rehearing with the Ninth Circuit. On November 12, 2019, the Ninth Circuit issued an order denying Altera's petition. On February 10, 2020, Altera filed a writ of certiorari with the U.S. Supreme Court for review of the case. As such, the decision is not final. The Company has concluded that the law is unsettled and continue to record tax benefits as we exclude stock-based compensation costs from our cost sharing arrangement. As of March 28, 2020, the cumulative potential impact of a final adverse decision to the consolidated statement of income was $55 million to $60 million for taxes and interest. The Company will continue to monitor developments in the Altera case and the potential effect on our consolidated financial statements.