Income Taxes

3 Months Ended

Sep. 26, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

In general, the variation between the Company's effective income tax rate and the U.S. statutory rate of 21% is primarily due to: (i) changes in the Company’s valuation allowances against deferred tax assets in the U.S. and Luxembourg, (ii) projected income for the full year derived from international locations with differing tax rates than the U.S. and (iii) projected tax credits generated.

The Company assesses all available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets by jurisdiction. As of September 26, 2021, the Company has concluded that it is necessary to recognize a full valuation allowance against its U.S. and Luxembourg deferred tax assets.

As a result of the LED Business Divestiture and the liquidation of the Company’s common stock ownership interest in ENNOSTAR, Inc., the Company began reviewing its legal entity structure, including its Luxembourg holding company, during the fourth quarter of fiscal 2021. As of September 26, 2021, the Company is still performing the due diligence necessary to understand its ability and desire to restructure its Luxembourg holding company. If the Company determines it is willing and able to execute a restructuring of its Luxembourg holding company, it is reasonably possible the action could generate taxable income of the right character to utilize all or a portion of the Company’s existing $121.8 million of deferred tax assets in Luxembourg. As a result, the Company believes it is reasonably possible within the next twelve months, and potentially as early as the second quarter of fiscal 2022, that objective positive evidence may become available to allow the Company to conclude that all or a portion of the $121.8 million of Luxembourg deferred tax assets are realizable. This determination would result in the release of all or a portion of the Luxembourg valuation allowance. The release of the Luxembourg valuation allowance could result in the recognition of $121.8 million of net operating loss deferred tax assets and a decrease to income tax expense in the period the release is recorded.

U.S. GAAP requires a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is cumulatively more than 50% likely to be realized upon ultimate settlement.

As of June 27, 2021, the Company's liability for unrecognized tax benefits was $7.4 million. During the three months ended September 26, 2021, the Company did not record any material movement in its unrecognized tax benefits. As a result, the total liability for unrecognized tax benefits as of September 26, 2021 was $7.4 million. If any portion of this $7.4 million is recognized, the Company will then include that portion in the computation of its effective tax rate. Although the ultimate timing of the resolution and/or closure of audits is highly uncertain, the Company believes it is reasonably possible that $0.6 million of gross unrecognized tax benefits will change in the next 12 months as a result of statute requirements or settlement with tax authorities.

The Company files U.S. federal, U.S. state and foreign tax returns. For U.S. federal purposes, the Company is generally no longer subject to tax examinations for fiscal years prior to 2017. For U.S. state tax returns, the Company is generally no longer subject to tax examinations for fiscal years prior to 2017. For foreign purposes, the Company is generally no longer subject to examination for tax periods prior to 2011. Certain carryforward tax attributes generated in prior years remain subject to examination, adjustment and recapture.