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Income Taxes | 12 Months Ended
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Sep. 28, 2018
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes The following table presents the components of our consolidated income tax expense for years ended September 28, 2018, September 29, 2017 and September 30, 2016 (in thousands):
| For the Years Ended
| September 28, 2018 |  | September 29, 2017 |  | September 30, 2016
Current income tax expense: |  |  |  |  |  |  |  |
Federal | $ | 34,145 |  |  | $ | 29,297 |  |  | $ | 36,020 |
State | (597 | ) |  | 8,535 |  |  | 11,336 |
Foreign | 59,889 |  |  | 31,347 |  |  | 52,259 |
Total current tax expense | 93,437 |  |  | 69,179 |  |  | 99,615 |
Deferred income tax expense (benefit): |  |  |  |  |  |  |  |
Federal | 252,730 |  |  | 29,390 |  |  | 6,439 |
State | 15,485 |  |  | 3,407 |  |  | 485 |
Foreign | 19,911 |  |  | 3,866 |  |  | (34,331 | )
Total deferred tax expense (benefit) | 288,126 |  |  | 36,663 |  |  | (27,407 | )
Consolidated income tax expense | $ | 381,563 |  |  | $ | 105,842 |  |  | $ | 72,208 |
On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was enacted in the United States. The Act reduced the top corporate U.S. federal statutory tax rate from 35% to 21% starting on January 1, 2018, resulting in a blended statutory tax rate for fiscal year filers. It also requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries, places limitations and exclusions on varied tax deductions and creates new taxes on certain foreign sourced earnings. The majority of the tax provisions, excluding the change in corporate tax rates, are effective for the first tax year beginning after January 1, 2018, which will be the Company’s taxable year beginning fiscal 2019. Given the significance of the legislation, the SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118), which allows registrants to record provisional amounts during a one year “measurement period” similar to that used when accounting for business combinations. However, the measurement period is deemed to have ended earlier when the registrant has obtained, prepared and analyzed the information necessary to finalize its accounting. During the measurement period, impacts of the law are expected to be recorded at the time a reasonable estimate for all or a portion of the effects can be made, and provisional amounts can be recognized and adjusted as information becomes available, prepared or analyzed. SAB 118 summarizes a three-step process to be applied at each reporting period to account for and qualitatively disclose: (1) the effects of the change in tax law for which accounting is complete; (2) provisional amounts (or adjustments to provisional amounts) for the effects of the tax law where accounting is not complete, but that a reasonable estimate has been determined; and (3) a reasonable estimate cannot yet be made and therefore taxes are reflected in accordance with law prior to the enactment of the Act. As of September 28, 2018, the Company has not completed the accounting for the tax effects of the enactment of the Act. However, the Company has made a provisional estimate of the effects of the statutory tax rate reduction impact on our existing deferred tax balances, the tax on global intangible low-taxed income and the one-time transition tax. The Act calls for a one-time tax on deemed repatriation of foreign earnings. This one-time transition tax is based on the Company's total post-1986 earnings and profits (E&P) of certain of our foreign subsidiaries. The Company has made a revised provisional estimate of the transition tax. Based upon our review of the Company’s historical foreign tax credit position and post-1986 E&P, it is estimated at this time that the Company will incur approximately $14.3 million transition tax expense net of foreign tax credits. The Company is still in the process of completing our calculation of the total post-1986 E&P. The estimate may change when the Company finalizes the calculation of post-1986 foreign E&P previously deferred from U.S. federal taxation and finalizes the amounts held in cash or other specified assets. The Company has also recorded a provisional expense of $104.2 million after consideration for valuation allowance with respect to certain foreign tax credits as a result of integration impacts. In the current fiscal year, the Company adopted ASU No 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The guidance gives entities the option to reclassify to retained earnings tax effects related to items in accumulated other comprehensive income that the FASB refers to as having been stranded in accumulated other comprehensive income as a result of tax reform. As a result of adoption of ASU 2018-02, the Company reclassified $10.2 million in accumulated other comprehensive income to retained earnings relating to the current year deferred tax activity for its U.S. pension plans resulting from the Act. Deferred taxes reflect the tax effects of temporary differences between the amounts recorded as assets and liabilities for financial reporting purposes and the comparable amounts recorded for income tax purposes. Deferred tax assets and liabilities are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The following table presents the components of our net deferred tax assets at September 28, 2018 and September 29, 2017 (in thousands):
| September 28, 2018 |  | September 29, 2017
Deferred tax assets: |  |  |  |  |
Obligations relating to: |  |  |  |  |
Defined benefit pension plans | $ | 30,483 |  |  | $ | 52,299 |
Other employee benefit plans | 190,548 |  |  | 192,299 |
Net Operating Losses | 167,424 |  |  | 136,783 |
Foreign Tax Credit | 145,931 |  |  | — |
Other Credits | 8,764 |  |  |
Self-insurance programs | — |  |  | 489 |
Contract revenues and costs | 130,116 |  |  | (18,374 | )
Deferred Rent | 5,454 |  |  | 25,654 |
Restructuring | 14,515 |  |  | 18,258 |
Other | 3,533 |  |  | 19,389 |
Valuation Allowance | (264,944 | ) |  | (58,097 | )
Gross deferred tax assets | 431,824 |  |  | 368,700 |
Deferred tax liabilities: |  |  |  |  |
Depreciation and amortization | (206,705 | ) |  | (176,327 | )
Self-insurance programs | (3,513 | ) |  | — |
Unremitted earnings | (79,418 | ) |  | — |
Other, net | — |  |  | (1,438 | )
Gross deferred tax liabilities | (289,636 | ) |  | (177,765 | )
Net deferred tax assets | $ | 142,188 |  |  | $ | 190,935 |
We remeasured the U.S. deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. The Company’s provisional remeasurement resulted in a $139.8 million net unfavorable charge to income tax expense for the year ended September 28, 2018. The Company is still analyzing purchase accounting related to CH2M Hill and refining the calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax assets and liabilities. A valuation allowance is recorded to reduce deferred tax assets to the amount that is more likely than not to be realized based on an assessment of positive and negative evidence, including estimates of future taxable income necessary to realize future deductible amounts. The valuation allowance was $264.9 million at September 28, 2018 and $58.1 million at September 29, 2017. Net operating loss carry forwards of foreign subsidiaries at September 28, 2018 and September 29, 2017 totaled $662.4 million and $490.9 million, respectively. If unused, foreign net operating losses of $168.1 million will expire between 2019 and 2038. Net operating losses of $494.3 million can be carried forward indefinitely. The following table presents the income tax benefits realized from the exercise of non-qualified stock options and disqualifying dispositions of stock sold under our employee stock purchase plans for the years ended September 28, 2018, September 29, 2017 and September 30, 2016 (in millions):
For the Years Ended
September 28, 2018 |  | September 29, 2017 |  | September 30, 2016
$ | 4.7 |  |  | $ | 5.2 |  |  | $ | 1.5 |
The Company’s consolidated effective income tax rate is higher than the US statutory rate of 24.6% primarily due to a $139.8 million detriment from the provisional remeasurement of the deferred tax items in the U.S. from the reduction in the U.S. statutory rate, as well as a charge for valuation allowance related to foreign tax credits of $104.2 million. In addition, there was an increase due to the difference in foreign tax rates compared to the new U.S. statutory rate of $9.9 million. The unfavorable charges were partially offset by a $5.7 million benefit related to a federal hurricane credit and $4.5 million benefit related to the Internal Revenue Code section 179D deduction for the design of energy efficient facilities. The following table reconciles total income tax expense using the statutory U.S. federal income tax rate to the consolidated income tax expense shown in the accompanying Consolidated Statements of Earnings for the years ended September 28, 2018, September 29, 2017 and September 30, 2016 (dollars in thousands):
| For the Years Ended
| September 28, 2018 |  | % |  | September 29, 2017 |  | % |  | September 30, 2016 |  | %
Statutory amount | $ | 136,458 |  |  | 24.6 | % |  | $ | 137,626 |  |  | 35.0 | % |  | $ | 100,353 |  |  | 35.0 | %
State taxes, net of the federal benefit | 7,587 |  |  | 1.4 | % |  | 8,955 |  |  | 2.3 | % |  | 7,853 |  |  | 2.7 | %
Exclusion of tax on non-controlling interests | (2,389) |  |  | (0.4 | )% |  | 2,223 |  |  | 0.6 | % |  | (1,418 | ) |  | (0.5 | )%
Foreign: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Difference in tax rates of foreign operations | 9,860 |  |  | 1.8 | % |  | (16,987 | ) |  | (4.3 | )% |  | (17,184 | ) |  | (6.0 | )%
Benefit from foreign valuation allowance release | (5,105) |  |  | (0.9 | )% |  | (3,085 | ) |  | (0.8 | )% |  | (11,182 | ) |  | (3.9 | )%
U.K. tax rate change on deferred tax assets | — |  |  | — |  |  | — |  |  | — | % |  | 8,853 |  |  | 3.1 | %
Nontaxable income from foreign affiliate | — |  |  | — |  |  | (3,280 | ) |  | (0.8 | )% |  | — |  |  | — |
U.S. tax cost of foreign operations | 6,577 |  |  | 1.2 | % |  | 18,612 |  |  | 4.7 | % |  | 30,850 |  |  | 10.9 | %
Tax differential on foreign earnings | 11,332 |  |  | 2.0 | % |  | (4,740 | ) |  | (1.2 | )% |  | 11,337 |  |  | 4.1 | %
Foreign tax credits | (21,729) |  |  | (3.9 | )% |  | (20,454 | ) |  | (5.2 | )% |  | (44,018 | ) |  | (15.4 | )%
Tax Reform | 154,150 |  |  | 27.8 | % |  | — |  |  | — |  |  | — |  |  | — |
Valuation Allowance | 104,221 |  |  | 18.8 | % |  | — |  |  | — |  |  | — |  |  | — |
Uncertain tax positions | (1,297) |  |  | (0.2 | )% |  | (5,779 | ) |  | (1.5 | )% |  | 1,449 |  |  | 0.5 | %
Other items: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
IRS §179D deduction | (4,520) |  |  | (0.8 | )% |  | (3,351 | ) |  | (0.8 | )% |  | (2,153 | ) |  | (0.8 | )%
IRS §199D deduction | — |  |  | — |  |  | (2,113 | ) |  | (0.5 | )% |  | (2,800 | ) |  | (1.0 | )%
Foreign partnership income/(loss) | (3,990) |  |  | (0.7 | )% |  | (9,861 | ) |  | (2.5 | )% |  | (2,658 | ) |  | (0.9 | )%
Other items – net | 1,740 |  |  | 0.3 | % |  | 3,336 |  |  | 0.7 | % |  | 4,263 |  |  | 1.5 | %
Total other items | (6,770) |  |  | (1.2 | )% |  | (11,989 | ) |  | (3.1 | )% |  | (3,348 | ) |  | (1.2 | )%
Taxes on income | $ | 381,563 |  |  | 68.9 | % |  | $ | 105,842 |  |  | 26.9 | % |  | $ | 72,208 |  |  | 25.2 | %
The Company’s consolidated effective income tax rate for the year ended September 28, 2018 increased to 68.9% from 26.9% for fiscal 2017. Key drivers for this year over year increase include the reduction in the U.S. statutory tax rate causing a detriment for provisional remeasurement of the deferred tax items in the U.S. of $139.8 million, as well as a charge for valuation allowance related to foreign tax credits of $104.2 million. In addition, there was an increase due to the difference in foreign tax rates compared to the new U.S. statutory rate of $26.8 million. These detriments were partially offset by a $4.5 million benefit related to internal revenue service code section 179D, a nonrecurring benefit of $2.8 million related to tax accounting method changes and a $5.7 million federal hurricane credit. The Company’s consolidated effective income tax rate for the year ended September 29, 2017 increased to 26.9% from 25.2% for fiscal 2016. Key drivers for this year over year increase included the impacts of lower foreign tax credit benefits and lower benefits from valuation allowance releases on foreign deferred tax assets, partly offset by favorable impacts of U.S. tax cost of foreign operations, the non-recurrence of 2016 tax rate change impacts on deferred income tax assets in the UK and favorable impacts from change in uncertain tax positions. The following table presents income tax payments made during the years ended September 28, 2018, September 29, 2017 and September 30, 2016 (in millions):
September 28, 2018 |  | September 29, 2017 |  | September 30, 2016
$ | 44.29 |  |  | $ | 78.39 |  |  | $ | 116.30 |
The following table presents the components of our consolidated earnings before taxes for the years ended September 28, 2018, September 29, 2017 and September 30, 2016 (in thousands):
| For the Years Ended
| September 28, 2018 |  | September 29, 2017 |  | September 30, 2016
United States earnings | $ | 282,123 |  |  | $ | 232,342 |  |  | $ | 206,159 |
Foreign earnings | 272,582 |  |  | 160,875 |  |  | 80,564 |
| $ | 554,705 |  |  | $ | 393,217 |  |  | $ | 286,723 |
The tax cost, net of applicable credits, have been provided on the undistributed earnings of the Company’s foreign subsidiaries. As of September 28, 2018, the provisional estimate of repatriating earnings to the United States is estimated at $93.0 million. The Company does not assert any earnings to be permanently reinvested. The Company accounts for unrecognized tax benefits in accordance with ASC Topic 740, Income Taxes. It accounts for interest and penalties on unrecognized tax benefits as interest and penalties (i.e., not as part of income tax expense). The Company’s liability for gross unrecognized tax benefits was $76.7 million and $38.6 million at September 28, 2018 and September 29, 2017, respectively, all of which, if recognized, would affect the Company’s consolidated effective income tax rate. The Company had $56.3 million and $36.6 million in accrued interest and penalties at September 28, 2018 and September 29, 2017, respectively. The Company estimates that, within twelve months, we may realize a decrease in our uncertain tax positions of approximately $6.5 million as a result of concluding various tax audits and closing tax years. As of September 28, 2018, the Company’s U.S. federal income tax returns for tax years 2009 and forward remain subject to examination. The following table presents the reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended September 28, 2018, September 29, 2017 and September 30, 2016 (in thousands):
| For the Years Ended
| September 28, 2018 |  | September 29, 2017 |  | September 30, 2016
Balance, beginning of year | $ | 38,580 |  |  | $ | 44,167 |  |  | $ | 42,666 |
Acquisition of CH2M | 137,912 |  |  | — |  |  | — |
Additions based on tax positions related to the current year | 9,780 |  |  | 5,900 |  |  | 5,670 |
Additions for tax positions of prior years | 5,561 |  |  | 237 |  |  | 367 |
Reductions for tax positions of prior years | (8,962 | ) |  | (4,524 | ) |  | (2,451 | )
Settlement | (3,731 | ) |  | (7,200 | ) |  | (2,085 | )
Balance, end of year | $ | 179,140 |  |  | $ | 38,580 |  |  | $ | 44,167 |
On December 15, 2017 the Company completed the acquisition of CH2M. For income tax purposes, the transaction was accounted for as a stock purchase. As a result of the acquisition, the Company adjusted its U.S. GAAP opening balance sheet of CH2M to reflect preliminary estimates of the fair value of the net assets acquired. For income tax purposes, the tax attributes and basis of net assets acquired carryover without any step-up to fair value. The Company has made preliminary estimates and recorded deferred taxes associated with the purchase accounting. It is expected that the Company will make adjustments to the purchase accounting over the relevant measurement period as allowed by ASC 805.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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