v3.26.3
Income Taxes
 12 Months Ended
Aug. 28, 2026
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes
Income (loss) before provision for income taxes consisted of the following:
Year endedAugust 28,
2026		August 29,
2025		August 30,
2024
Income (loss) before income taxes:
U.S.$38,736 $39,438 $38,246 
Foreign113,187 9,463 (69,413)
$151,923 $48,901 $(31,167)
Income tax provision (benefit) consisted of the following:
Year endedAugust 28,
2026		August 29,
2025		August 30,
2024
Income tax provision (benefit):
Current:
Federal$(39)$17,444 $10,930 
State863 4,000 1,821 
Foreign27,620 12,768 9,253 
28,444 34,212 22,004 
Deferred:
Federal(61,755)(12,227)(6,815)
State(1,014)(1,099)540 
Foreign460 (820)(5,111)
(62,309)(14,146)(11,386)
Income tax provision (benefit)$(33,865)$20,066 $10,618 
ASU 2023-09 was adopted on a prospective basis for the year ended August 28, 2026, accordingly the following table has been included which discloses the amount of income taxes paid (net of refunds) disaggregated by jurisdiction:
Year endedAugust 28,
2026
Federal$1,650 
State and local1,948 
Foreign
Malaysia13,455 
Luxembourg$7,219 
Hong Kong1,883 
All other foreign$2,660 
$28,815 
Income taxes paid totaled $34.5 million and $13.1 million for the years ended August 29, 2025 and August 30, 2024, respectively.
The Company adopted ASU 2023-09 on a prospective basis for the year ended August 28, 2026. Accordingly, the following table presents a reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate. See “Recently Adopted Accounting Standards” for additional information regarding the adoption of ASU 2023-09.
Year endedAugust 28, 2026
US federal statutory tax rate$31,904 21.0 %
State income tax, net of federal benefit (1)
(389)(0.3)%
Domestic federal tax effects:
Effects of cross-border tax laws:
Global Intangible Low-Taxed Income (GILTI)3,860 2.5 %
US tax on foreign branches(8,711)(5.7)%
Other effects of cross-border tax laws(400)(0.3)%
Tax credits(1,511)(1.0)%
Non-deductible expenses (non-taxable income)313 0.2 %
Changes in valuation allowances(63,868)(42.0)%
Other adjustments(43)— %
Foreign tax effects
Brazil
Withholding tax6,528 4.3 %
Cayman Islands
Statutory tax rate difference8,712 5.7 %
Luxembourg
Gain/(Loss) on Investments(7,310)(4.8)%
Changes in valuation allowances6,231 4.1 %
Other70 — %
Malaysia
Statutory tax rate difference3,775 2.5 %
Tax incentives(17,475)(11.5)%
Global minimum tax3,391 2.2 %
Other617 0.5 %
Other Foreign Jurisdictions919 0.6 %
Worldwide changes in unrecognized tax benefits(478)(0.3)%
Effective Tax Rate$(33,865)(22.3)%
(1) The states that contribute to the majority (greater than 50%) of the tax effect in this category include Arizona, California, Pennsylvania and Wisconsin for fiscal year 2026.
As previously disclosed for the years ended August 29, 2025, and August 30, 2024, prior to the adoption of ASU 2023-09, the effective income tax rate differs from the statutory federal income tax rate as follows:
Year endedAugust 29, 2025August 30, 2024
Statutory tax rate$10,269 21.0 %$(6,545)21.0 %
Foreign income taxes at different rates6,665 13.6 %15,870 (50.9)%
State income tax, net of federal benefit1,903 3.9 %2,278 (7.3)%
Tax on uncertain tax positions313 0.6 %(3,825)12.3 %
Stock-based compensation
135 0.3 %(100)0.3 %
Change in valuation allowance69,669 142.5 %1,111 (3.6)%
Non-deductible expenses (non-taxable income)2,177 4.5 %1,053 (3.4)%
Foreign withholding tax2,429 5.0 %4,548 (14.6)%
Tax credits(1,814)(3.7)%(3,337)10.7 %
Effect of cross-border tax laws1,409 2.9 %— — %
U.S. Domestication(75,126)(153.6)%— — %
Return to Provision
2,283 4.7 %— — %
Other(246)(0.7)%(435)1.4 %
Effective tax rate$20,066 41.0 %$10,618 (34.1)%
The Company’s effective income tax rate fluctuates from year to year due to changes in the geographic mix of earnings among jurisdictions with different tax rates, as well as the impact of discrete tax items and other events, including changes in tax laws, business development activities and changes in the realizability of deferred tax assets. The Company’s effective income tax rate for fiscal year 2026 differed from the U.S. federal income tax rate primarily due to the impact of foreign operations in jurisdictions with tax rates lower than the U.S. federal tax rate, U.S. tax credits and incentives, tax effects associated with the U.S. Domestication, and the release of a valuation allowance.

During fiscal year 2026, we completed a legal entity restructuring to support the rebranding and alignment of our operations under Penguin Solutions. As a result of the restructuring, certain limitations under our prior legal entity structure that restricted our ability to utilize tax attributes were attenuated. Accordingly, based on our legal entity structure and expectations of future taxable income, the Company released a $68.7 million valuation allowance.
Deferred income taxes reflect the net tax effects of temporary differences between the bases of assets and liabilities for financial reporting and income tax purposes as well as carryforwards. Deferred tax assets and liabilities consisted of the following:
As ofAugust 28,
2026		August 29,
2025
Deferred tax assets:
Accruals and allowances$19,766 $16,868 
Deferred revenue518 371 
Stock-based compensation1,765 2,028 
Research and other tax credit carryforwards6,778 4,479 
Capitalized research and development21,839 29,584 
Operating lease liabilities14,573 15,823 
Tax amortizable goodwill12,062 13,370 
Interest carryforward90,003 91,125 
Intangible assets12,210 11,704 
Original Issue Discount and Debt Issuance Costs11,153 — 
Unrealized Capital Loss2,534 — 
Loss carryforwards15,475 10,690 
Gross deferred tax assets208,676 196,042 
Valuation allowance(14,315)(73,443)
Net deferred tax assets194,361 122,599 
Deferred tax liabilities:
Operating right-of-use assets12,293 13,531 
Property and equipment8,146 9,346 
Other liabilities1,079 922 
Gross deferred tax liabilities21,518 23,799 
Net deferred tax assets$172,843 $98,800 
Reported as:
Deferred tax assets$173,389 $99,107 
Deferred tax liabilities (included in other noncurrent liabilities)(546)(307)
Net deferred tax assets$172,843 $98,800 
We assess positive and negative evidence for each jurisdiction to determine whether it is more likely than not existing deferred tax assets will be realized. In 2026, we released $68.7 million of valuation allowance previously recorded against tax attributes. We continue to maintain valuation allowances against certain acquired state and foreign tax attributes due to expected limitations on utilization. We will continue to monitor the need for a valuation allowance against our remaining deferred tax assets.
As of August 28, 2026, we had U.S. federal and state net operating loss carryforwards of $19.5 million and $36.6 million, respectively. If not utilized, the federal net operating loss carryforwards will begin to expire in 2035. State net operating loss carryforwards of $36.4 million will begin to expire in 2031, while the remaining state net operating loss carryforwards do not expire. In addition, we had U.S. federal and state research and development credit carryforwards of $10.4 million and $4.7 million, respectively, and $1.9 million of foreign tax credit carryforwards. If not utilized, the federal research and development tax credits will begin to expire in 2032 and foreign tax credits will begin to expire in 2033. If not utilized, $2.2 million of state credits will begin to expire in 2030, while $2.5 million of state credits do not expire. In addition, we had Section 163(j) interest expense carryforwards of $97.9 million from the acquisition of Stratus Technologies as well as $318.5 million within the U.S. consolidated group, both of which do not expire. We have net operating loss carryforwards in Hong Kong of $25.6 million and Ireland of $10.2 million which do not expire. Net operating loss carryforwards in Luxembourg of $26.6 million will begin to expire in 2043.
Federal and state tax attributes can be subject to an annual limitation under the provisions of Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"), and state tax laws. Further, under Section 382 of the
Code, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards to offset its post-change taxable income may be limited. In general, an “ownership change” will occur if there is a cumulative change in our ownership by certain “5-percent shareholders” (including groups of shareholders) that exceeds 50 percentage points over a rolling three-year period. Similar rules may apply under state tax laws. Our net operating loss, tax credit, and Section 163(j) interest expense carryforwards are subject to limitations per Sections 382 and 383 of the Code. We have experienced ownership changes in the past, and we may experience ownership changes in the future as a result of future transactions in our common stock, some changes of which may be outside of our control. As a result, our ability to use our pre-change net operating loss, tax credit, and Section 163(j) interest expense carryforwards to offset post-change U.S. federal and state taxable income may be subject to additional limitations.
Activity related to our deferred tax valuation allowance was as follows:
Year endedAugust 28,
2026		August 29,
2025		August 30,
2024
Balance at beginning of period$73,443 $3,774 $2,663 
Charged (credited) to operations(59,128)69,669 1,111 
Balance at end of period$14,315 $73,443 $3,774 
We intend to indefinitely reinvest certain foreign earnings while maintaining flexibility to repatriate excess cash where needed to manage debt balances. Provisions have been made for deferred income taxes on undistributed earnings of foreign subsidiaries to the extent that dividend payments are expected to result in additional tax liability, primarily related to foreign withholding taxes, which are not individually or cumulatively significant.
Below is a reconciliation of our unrecognized tax benefits:
Year endedAugust 28,
2026		August 29,
2025		August 30,
2024
Beginning unrecognized tax benefits$21,041 $21,428 $25,603 
Increases related to prior year tax provisions1,047 — 129 
Increases related to current year tax provisions518 495 1,099 
Decreases related to prior year tax provisions(944)(602)(5,348)
Lapse of statute of limitation(759)(280)(55)
Ending unrecognized tax benefits$20,903 $21,041 $21,428 
As of August 28, 2026 and August 29, 2025, the total amount of unrecognized tax benefits that would affect our effective tax rate, if recognized, was $18.1 million and $18.3 million, respectively. Amounts accrued for interest and penalties related to uncertain tax positions were not material for any period presented. The resolution of tax audits or expiration of statute of limitations could also reduce our unrecognized tax benefits.
We and our subsidiaries file income tax returns with the U.S. federal government, various U.S. states and various foreign jurisdictions throughout the world. We regularly engage in discussions and negotiations with tax authorities regarding tax matters, including transfer pricing, and we continue to defend any and all such claims presented. Our U.S. federal and state tax returns remain open to examination for 2007 through 2025. In addition, tax returns that remain open to examination in non-U.S. subsidiaries, including Malaysia, Luxembourg, Ireland, United Kingdom, Hong Kong and China, vary by country. We believe that adequate amounts of taxes and related interest and penalties have been provided, and any adjustments as a result of examinations are not expected to materially adversely affect our business, results of operations and financial condition.