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Income Taxes | 12 Months Ended
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Oct. 02, 2020
Income Tax Disclosure [Abstract] |
Income Taxes | INCOME TAXES:The Company accounts for income taxes using the asset and liability method. Under this method, the (benefit) provision for income taxes represents income taxes payable or refundable for the current year plus the change in deferred taxes during the year. Deferred taxes result from differences between the financial and tax bases in assets and liabilities and are adjusted for changes in tax rates and enacted tax legislation. Valuation allowances are recorded to reduce deferred tax assets ("DTAs") when it is more likely than not that a tax benefit will not be realized. The components of (loss) income before income taxes by source of (loss) income are as follows (in thousands):
|  | Fiscal Year Ended
|  | October 2, 2020 |  | September 27, 2019 |  | September 28, 2018
United States |  | $ | (291,436) |  |  | $ | 418,902 |  |  | $ | 326,277 |
Non-U.S. |  | (356,283) |  |  | 137,270 |  |  | 145,599 |
|  | $ | (647,719) |  |  | $ | 556,172 |  |  | $ | 471,876 |
The (benefit) provision for income taxes consists of (in thousands):
|  | Fiscal Year Ended
|  | October 2, 2020 |  | September 27, 2019 |  | September 28, 2018
Current: |  |  |  |  |  |
Federal |  | $ | (69,399) |  |  | $ | 8,781 |  |  | $ | (48,249) |
State and local |  | (4,616) |  |  | 19,966 |  |  | 11,356 |
Non-U.S. |  | 21,779 |  |  | 38,456 |  |  | 44,618 |
|  | (52,236) |  |  | 67,203 |  |  | 7,725 |
Deferred: |  |  |  |  |  |
Federal |  | (79,054) |  |  | 35,251 |  |  | (113,475) |
State and local |  | (19,627) |  |  | 7,683 |  |  | 7,408 |
Non-U.S. |  | (35,367) |  |  | (2,431) |  |  | 1,778 |
|  | (134,048) |  |  | 40,503 |  |  | (104,289) |
|  | $ | (186,284) |  |  | $ | 107,706 |  |  | $ | (96,564) |
Current taxes receivable of $123.6 million and $35.1 million at October 2, 2020 and September 27, 2019, respectively, are included in "Prepayments and other current assets" on the Consolidated Balance Sheets. Current income taxes payable of $3.1 million and $8.1 million at October 2, 2020 and September 27, 2019, respectively, are included in "Accrued expenses and other current liabilities" on the Consolidated Balance Sheets. The (benefit) provision for income taxes varies from the amount determined by applying the United States Federal statutory rate to pretax (loss) income as a result of the following (all percentages are as a percentage of (loss) income before income taxes):
|  | Fiscal Year Ended
|  | October 2, 2020 |  | September 27, 2019 |  | September 28, 2018
United States statutory income tax rate |  | 21.0 | % |  | 21.0 | % |  | 24.5 | %
Increase (decrease) in taxes, resulting from: |  |  |  |  |  |
State income taxes, net of Federal tax benefit |  | 3.0 |  |  | 4.2 |  |  | 3.2 |
Foreign taxes(1) |  | (3.9) |  |  | 2.2 |  |  | 3.3 |
Foreign goodwill impairment |  | (5.0) |  |  | — |  |  | — |
Permanent book/tax differences |  | (0.7) |  |  | 0.6 |  |  | (1.2) |
Uncertain tax positions |  | 0.1 |  |  | — |  |  | (0.3) |
U.S. Tax Reform - Remeasurement of deferred taxes |  | — |  |  | — |  |  | (49.3) |
U.S. Tax Reform - Foreign tax credit valuation allowance |  | — |  |  | (2.3) |  |  | 2.8 |
Stock compensation |  | 3.6 |  |  | (0.2) |  |  | — |
CARES Act - Carryback rate differential |  | 9.8 |  |  | — |  |  | — |
Sale of HCT |  | — |  |  | (4.4) |  |  | — |
Tax credits & other |  | 0.9 |  |  | (1.7) |  |  | (3.5) |
Effective income tax rate |  | 28.8 | % |  | 19.4 | % |  | (20.5) | %
(1) | Includes differences between the United States statutory tax rate and tax rates in foreign jurisdictions, foreign withholding taxes and taxation of foreign earnings, which includes the transition tax on deemed repatriated earnings of foreign subsidiaries and the tax on "Global Intangible Low-Taxed Income" ("GILTI"), as well as valuation allowances in foreign countries in fiscal 2020 (3.4%).
The effective tax rate is based on expected income, statutory tax rates and tax planning opportunities available to the Company in the various jurisdictions in which it operates. Judgment is required in determining the effective tax rate and in evaluating the tax return positions. Reserves are established when positions are "more likely than not" to be challenged and not sustained. Reserves are adjusted at each financial statement date to reflect the impact of audit settlements, expiration of statutes of limitation, developments in tax law and ongoing discussions with tax authorities. Accrued interest and penalties associated with uncertain tax positions are recognized as part of the income tax provision. As of October 2, 2020, certain subsidiaries have recorded DTAs of $90.5 million associated with accumulated federal, state and foreign net operating loss ("NOL") carryforwards. The Company believes it is more likely than not that the benefit from certain state and foreign NOL carryforwards will not be realized. As a result, the Company has recorded a valuation allowance of approximately $39.0 million on the DTAs related to these state and foreign NOL carryforwards. State NOL carryforwards generally begin to expire in 2024 and foreign NOL carryforwards generally have no expiration date. The Company considers existing evidence, both positive and negative, that could impact the need for valuation allowances against DTAs. Based on cumulative losses and the goodwill impairment recorded in the FSS International segment during the second quarter of fiscal 2020 of $198.6 million (see Note 4) as negative evidence, the Company recorded a valuation allowance against DTAs of certain foreign subsidiaries of approximately $21.4 million in the fiscal year ended October 2, 2020. The goodwill impairment charge is nondeductible for income tax purposes. The Company continues to monitor operating performance in light of COVID-19 and believes that based on future reversals of deferred tax liabilities ("DTLs") and future taxable income, it is more likely than not that the remaining NOL carryforwards and DTAs will be realized. As of October 2, 2020, the Company has approximately $95.7 million of foreign tax credit ("FTC") carryforwards, which begin to expire in 2027, along with approximately $56.7 million of general business credits, which begin to expire in 2035 and approximately $10.7 million of interest restriction carryforwards, which do not expire. As of October 2, 2020 and September 27, 2019, the components of deferred taxes are as follows (in thousands):
|  | October 2, 2020 |  | September 27, 2019
Deferred tax liabilities: |  |  |  |
Property and equipment |  | $ | 183,789 |  |  | $ | 137,293 |
Investments |  | 13,300 |  |  | 11,902 |
Other intangible assets, including goodwill |  | 500,447 |  |  | 462,637 |
Cost to fulfill - Rental merchandise in-service |  | 52,334 |  |  | 83,483 |
Operating Lease Right-of-use Assets |  | 89,464 |  |  | — |
Other |  | 45,589 |  |  | 37,309 |
Gross deferred tax liability |  | 884,923 |  |  | 732,624 |
Deferred tax assets: |  |  |  |
Derivatives |  | 30,625 |  |  | 11,949 |
Insurance |  | 23,784 |  |  | 34,112 |
Employee compensation and benefits |  | 128,771 |  |  | 113,269 |
Accruals and allowances |  | 31,218 |  |  | 31,844 |
Operating lease liabilities |  | 102,259 |  |  | — |
NOL/credit carryforwards and other |  | 261,763 |  |  | 56,508 |
Gross deferred tax asset, before valuation allowances |  | 578,420 |  |  | 247,682 |
Valuation allowances |  | (38,977) |  |  | (17,532) |
Net deferred tax liability |  | $ | 345,480 |  |  | $ | 502,474 |
Rollforward of the valuation allowance is as follows:
|  | October 2, 2020 |  | September 27, 2019
Balance, beginning of year |  | $ | (17,532) |  |  | $ | (29,023) |
Additions(1) |  | (21,445) |  |  | (2,330) |
Subtractions(2) |  | — |  |  | 13,821 |
Balance, end of year |  | $ | (38,977) |  |  | $ | (17,532) |
(1) | The additions in both fiscal 2020 and fiscal 2019 were mainly driven by losses in certain foreign subsidiaries.
(2) | Valuation allowances against FTC carryforwards were released during fiscal 2019 as a result of Treasury Regulations.
DTLs of approximately $398.8 million and $519.9 million as of October 2, 2020 and September 27, 2019, respectively, are included in "Deferred Income Taxes and Other Noncurrent Liabilities" on the Consolidated Balance Sheets. DTAs of approximately $53.3 million and $17.4 million as of October 2, 2020 and September 27, 2019, respectively, are included in "Other Assets" on the Consolidated Balance Sheets. The Company has approximately $34.6 million of total gross unrecognized tax benefits as of October 2, 2020, of which $32.3 million, if recognized, would impact the effective tax rate and $2.3 million would result in an adjustment to the DTL. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits follows (in thousands):
| October 2, 2020 |  | September 27, 2019
Balance, beginning of year | $ | 36,272 |  |  | $ | 29,089 |
Additions based on tax positions taken in the current year | 1,257 |  |  | 3,713 |
Additions for tax positions taken in prior years | — |  |  | 6,531 |
Reductions for remeasurements, settlements and payments | (392) |  |  | (1,484) |
Reductions due to statute expiration | (2,559) |  |  | (1,577) |
Balance, end of year | $ | 34,578 |  |  | $ | 36,272 |
The Company has approximately $4.6 million and $5.5 million accrued for interest and penalties as of October 2, 2020 and September 27, 2019, respectively, in the Consolidated Balance Sheets and recorded ($0.8) million and $0.6 million in interest and penalties during fiscal 2020 and fiscal 2019, respectively in the Consolidated Statements of (Loss) Income. Interest and penalties related to unrecognized tax benefits are recorded in "(Benefit) Provision for income taxes" on the Consolidated Statements of (Loss) Income. Unrecognized tax benefits are not expected to significantly change within the next 12 months. Generally, a number of years may elapse before a tax reporting year is audited and finally resolved. With few exceptions, the Company is no longer subject to U.S. federal, state or local examinations by tax authorities before 2015. While it is often difficult to predict the final outcome or the timing of or resolution of a particular tax matter, the Company does not anticipate any adjustments resulting from U.S. federal, state or foreign tax audits that would result in a material change to the financial condition or results of operations. Adequate amounts are established for any adjustments that may result from examinations for tax years after 2015. However, an unfavorable settlement of a particular issue would require use of the Company's cash and cash equivalents. On March 27, 2020, the CARES Act was enacted in response to COVID-19. The CARES Act, among other things, permits NOLs incurred in fiscal 2019, 2020 and 2021 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. NOLs arising in fiscal 2019, 2020, or 2021 are created in years that have a 21.0% federal income tax rate. If these NOLs are carried back to years prior to fiscal 2018, the resulting refund would be in years with a 35.0% federal income tax rate. The CARES Act contains modifications on the limitation of business interest for fiscal years 2020 and 2021 to increase the allowable business interest deduction from 30.0% of adjusted taxable income to 50.0% of adjusted taxable income. The CARES Act also includes a technical correction to the TCJA that provides that Qualified Improvement Property ("QIP"), which includes almost any improvement to the interior of leased or owned space, is eligible for bonus depreciation retroactively to the January 1, 2018 effective date of the TCJA. As a result of the CARES Act, the Company recorded a net benefit to the (Benefit) Provision for Income Taxes of approximately $58.4 million during fiscal 2020, of which $63.4 million reflects the NOLs expected to be carried back to Pre-TCJA years at 35.0% as opposed to the current year rate of 21.0%. The Company also re-established certain reserves of approximately $5.0 million, which expired due to statutes but were re-opened due to the carryback period. The NOL carryback generated for the fiscal year ended October 2, 2020 resulted in a $62.1 million income tax receivable, along with $65.1 million of FTCs and $35.9 million of general business credits that will be used to offset future federal income tax liabilities. The Company will continue to monitor and assess the impact the CARES Act and similar legislation in other countries may have on the Company's business and financial results. The effective tax rate for the fiscal year ended October 2, 2020 also includes an income tax benefit of approximately $46.2 million, as a result of an excess tax benefit recognized in relation to equity awards exercised during the fiscal year, including by the former Chairman, President and Chief Executive Officer. This benefit reflects a federal tax rate of 35.0% due to the NOL being carried back to pre-TCJA tax years. On December 22, 2017, “H.R.1,” commonly referred to as the TCJA was signed into U.S. law. The TCJA, which was effective on January 1, 2018, significantly revised the U.S. tax code by, among other things, lowering the corporate income tax rate from 35.0% to 21.0% and implementing new international tax provisions that included a one-time transition tax on deemed repatriated earnings of foreign subsidiaries. Though certain key aspects of the new law were effective January 1, 2018 and had an immediate accounting impact, other significant provisions were not effective or did not result in accounting implications for the Company until after the fiscal year end ended September 28, 2018. The provisions effective for fiscal 2019 are the tax on GILTI, the deduction for "Foreign-Derived Intangible Income" ("FDII"), the Internal Revenue Code ("IRC") Section163(j) limitation on interest expense and the IRC Section 162(m) limitation on certain executive compensation. As a result of the enactment of the TCJA, the Company was required to recognize the effect of the corporate income tax rate change on its DTAs and DTLs in fiscal 2018, the period in which the legislation was enacted. The Company recorded a tax benefit from the corporate income tax rate change and certain other adjustments, which resulted in a non-cash benefit to the provision (benefit) for income taxes of approximately $237.8 million, which was recorded to the Consolidated Statements of (Loss) Income for the fiscal year ended September 28, 2018. A corresponding reduction to the Company's DTL was also recorded to the Consolidated Balance Sheets during the fiscal year ended September 28, 2018. The TCJA contains additional international provisions which impact the Company beginning in fiscal 2019, including the tax on GILTI. The impact of the GILTI liability did not have a significant impact on the financial statements for the fiscal years ended September 27, 2019 and October 2, 2020. The Company is electing to treat taxes due on future U.S. inclusions in taxable income related to GILTI as a current period expense when incurred (the "period cost method"). Undistributed earnings of certain foreign subsidiaries for which no DTL was recorded amounted to approximately $251.1 million and $184.0 million as of October 2, 2020 and September 27, 2019, respectively. The foreign withholding tax cost associated with remitting these earnings is approximately $14.8 million and $11.0 million as of October 2, 2020 and September 27, 2019, respectively. Such amounts have not been accrued by the Company as it believes those foreign earnings are permanently reinvested.

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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/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 + Details
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