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Income Taxes | 12 Months Ended
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Sep. 29, 2023
Income Tax Disclosure [Abstract] |
Income Taxes | INCOME TAXES:The Company accounts for income taxes using the asset and liability method. Under this method, the Provision (Benefit) 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 Income (Loss) Before Income Taxes by source of income (loss) are as follows (in thousands):
|  | Fiscal Year Ended
|  | September 29, 2023 |  | September 30, 2022 |  | October 1, 2021
United States |  | $ | 391,460 |  |  | $ | 142,507 |  |  | $ | (147,735) |
Non-United States(1) |  | 459,684 |  |  | 113,131 |  |  | 14,883 |
|  | $ | 851,144 |  |  | $ | 255,638 |  |  | $ | (132,852) |
(1) | Fiscal 2023 includes gains from sale of equity investments (see Note 1).
The Provision (Benefit) for Income Taxes consists of (in thousands):
|  | Fiscal Year Ended
|  | September 29, 2023 |  | September 30, 2022 |  | October 1, 2021
Current: |  |  |  |  |  |
Federal |  | $ | 28,118 |  |  | $ | 1,125 |  |  | $ | (18,245) |
State and local |  | 16,108 |  |  | 7,467 |  |  | (1,309) |
Non-United States |  | 18,843 |  |  | 17,447 |  |  | 22,155 |
|  | 63,069 |  |  | 26,039 |  |  | 2,601 |
Deferred: |  |  |  |  |  |
Federal(1) |  | 101,120 |  |  | 29,912 |  |  | (15,364) |
State and local |  | 10,058 |  |  | 1,525 |  |  | (11,652) |
Non-United States |  | 3,367 |  |  | 3,985 |  |  | (16,218) |
|  | 114,545 |  |  | 35,422 |  |  | (43,234) |
|  | $ | 177,614 |  |  | $ | 61,461 |  |  | $ | (40,633) |
(1) | Fiscal 2023 increase in deferred tax expense is a result of the utilization of tax credit carryforward assets.
During fiscal 2021, the Current Provision (Benefit) for Income Taxes includes $16.7 million of tax expense related to an increase in unrecognized tax benefits, offset by a tax benefit of $13.8 million to the Deferred Provision (Benefit) for Income Taxes related to a corresponding decrease in deferred tax liabilities, resulting in a net tax expense to the "Provision (Benefit) for Income Taxes" on the Consolidated Statements of Income (Loss) of $2.9 million related to unrecognized tax benefits. Current taxes receivable of $10.2 million and $10.8 million at September 29, 2023 and September 30, 2022, respectively, are included in "Prepayments and other current assets" on the Consolidated Balance Sheets. Current income taxes payable of $25.0 million and $2.6 million at September 29, 2023 and September 30, 2022, respectively, are included in "Accrued expenses and other current liabilities" on the Consolidated Balance Sheets. During fiscal 2021, the Company received $93.6 million of proceeds related to the fiscal 2020 income tax return from the net operating losses ("NOLs") generated in fiscal 2020 as a result of the CARES Act. The Provision (Benefit) for Income Taxes varies from the amount determined by applying the United States Federal statutory rate to Income (Loss) Before Income Taxes as a result of the following (all percentages are as a percentage of Income (Loss) Before Income Taxes):
|  | Fiscal Year Ended
|  | September 29, 2023 |  | September 30, 2022 |  | October 1, 2021
United States statutory income tax rate |  | 21.0 | % |  | 21.0 | % |  | 21.0 | %
Increase (decrease) in taxes, resulting from: |  |  |  |  |  |
State income taxes, net of Federal tax benefit |  | 2.4 |  |  | 4.7 |  |  | 7.7 |
Foreign taxes |  | 1.1 |  |  | 4.0 |  |  | 6.1 |
Reduction of foreign valuation allowances |  | (0.4) |  |  | (2.1) |  |  | (16.5) |
Permanent book/tax differences |  | (0.4) |  |  | 2.4 |  |  | (0.4) |
Uncertain tax positions |  | 0.7 |  |  | 1.0 |  |  | (2.2) |
Reduction of foreign tax credit valuation allowance |  | (0.6) |  |  | (0.3) |  |  | (27.5) |
Sale of investments(1) |  | (1.6) |  |  | — |  |  | — |
CARES Act - Carryback rate differential |  | — |  |  | — |  |  | 37.9 |
Canada Defined Benefit Pension Plan Termination |  | — |  |  | — |  |  | 3.0 |
Pennsylvania Rate Change Impact |  | — |  |  | (1.7) |  |  | — |
Tax credits & other |  | (1.3) |  |  | (5.0) |  |  | 1.5 |
Effective income tax rate |  | 20.9 | % |  | 24.0 | % |  | 30.6 | %
(1) | Includes mainly capital tax gains related to the sale of equity investments in AIM offset by capital tax losses in certain investments in foreign entities.
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 each reporting date, the Company considers existing evidence, both positive and negative, that could impact the need for valuation allowances against DTAs. During fiscal 2023 and fiscal 2022, the Company recorded a benefit to the "Provision (Benefit) for Income Taxes" within the Consolidated Statements of Income (Loss) of $3.8 million and $8.5 million, respectively, for the reversal of a valuation allowance at a subsidiary in the FSS International segment. The valuation allowance reversal was driven by the Company's ability to utilize DTAs based on future taxable income expected due to business acquisitions. During fiscal 2021, the Company recorded a valuation allowance against DTAs based on cumulative losses in certain subsidiaries in the FSS International segment of $22.0 million to the "Provision (Benefit) for Income Taxes" on the Consolidated Statements of Income (Loss). The Company continues to monitor operating performance 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. During fiscal 2023, the Company recorded a net expense to the "Provision (Benefit) for Income Taxes" on the Consolidated Statements of Income (Loss) of $76.7 million, of which $98.4 million reflects the capital gain on the sale of its AIM Services Co., Ltd. equity investment, offset by $21.7 million of capital losses resulting from the restructuring of certain foreign subsidiaries. On July 8, 2022, Pennsylvania enacted a corporate net income tax rate reduction over a nine year period. The income tax rate for the 2022 and 2023 tax years are 9.99% and 8.99%, respectively. Starting with the 2024 tax year, the income tax rate is reduced by 0.50% annually until it reaches 4.99% for the 2031 tax year. The Company calculated the impact of the income tax rate reduction on the DTA and DTL balances at September 30, 2022 and recorded a net benefit of $4.2 million to the "Provision (Benefit) for Income Taxes" within the Consolidated Statements of Income (Loss) during fiscal 2022. On March 27, 2020, the CARES Act was enacted in response to COVID-19. The CARES Act, among other things, permitted NOLs incurred in fiscal years 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 years 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 year 2018, the resulting refund would be in years with a 35.0% federal income tax rate. During fiscal 2021, the Company recorded, as a result of the CARES Act, a net benefit to the "Provision (Benefit) for Income Taxes" on the Consolidated Statements of Income (Loss) of $12.0 million, of which $50.3 million reflected the NOLs expected to be carried back to Pre-Tax Cuts and Jobs Act ("TCJA") years at 35.0% as opposed to the current year rate of 21.0%, which more than offsets the $36.5 million valuation allowance on DTAs related to foreign tax credit ("FTC") carryforwards and $1.8 million of tax benefits eliminated by the NOLs carried back. For the fiscal year ended October 1, 2021, the NOL carryback generated a $3.7 million current taxes receivable, along with $71.3 million of FTCs and $11.0 million of general business credits that will be used to offset future federal income tax liabilities. The Company recorded a net benefit to the "Provision (Benefit) for Income Taxes" on the Consolidated Statements of Income (Loss) of $4.0 million during fiscal 2021 related to the release of certain stranded tax effects when the Company terminated certain Canadian pension plans (see Note 9). As of September 29, 2023 and September 30, 2022, the components of Deferred Income Taxes are as follows (in thousands):
|  | September 29, 2023 |  | September 30, 2022
Deferred tax liabilities: |  |  |  |
Derivatives |  | $ | 38,339 |  |  | $ | 40,325 |
Property and equipment |  | 60,622 |  |  | 98,331 |
Investments |  | 13,864 |  |  | 44,233 |
Other intangible assets, including goodwill |  | 635,154 |  |  | 606,211 |
Cost to fulfill - Rental merchandise in-service |  | 70,359 |  |  | 56,976 |
Operating Lease Right-of-use Assets |  | 61,049 |  |  | 83,270 |
Computer software costs and other |  | 33,014 |  |  | 25,401 |
Gross deferred tax liability |  | 912,401 |  |  | 954,747 |
Deferred tax assets: |  |  |  |
Insurance |  | 13,999 |  |  | 16,087 |
Employee compensation and benefits |  | 98,791 |  |  | 83,467 |
Accruals and allowances |  | 27,640 |  |  | 31,803 |
Operating lease liabilities |  | 74,024 |  |  | 91,492 |
NOL/credit carryforwards and other |  | 192,309 |  |  | 345,119 |
Gross deferred tax asset, before valuation allowances |  | 406,763 |  |  | 567,968 |
Valuation allowances |  | (78,194) |  |  | (83,827) |
Net deferred tax liability |  | $ | 583,832 |  |  | $ | 470,606 |
Rollforward of the valuation allowance is as follows:
|  | September 29, 2023 |  | September 30, 2022
Balance, beginning of year |  | $ | (83,827) |  |  | $ | (97,472) |
Additions |  | — |  |  | — |
Subtractions(1) |  | 5,633 |  |  | 13,645 |
Balance, end of year |  | $ | (78,194) |  |  | $ | (83,827) |
(1) | The subtractions in fiscal 2023 and fiscal 2022 are mainly driven by the reversal of a valuation allowance based on future taxable income expected due to acquisitions of businesses in the FSS International segment. Fiscal 2022 also includes the reversal of valuation allowances related to pensions.
DTLs of $610.5 million and $501.4 million as of September 29, 2023 and September 30, 2022, respectively, are included in "Deferred Income Taxes and Other Noncurrent Liabilities" on the Consolidated Balance Sheets. DTAs of $26.7 million and $30.8 million as of September 29, 2023 and September 30, 2022, respectively, are included in "Other Assets" on the Consolidated Balance Sheets. As of September 29, 2023, certain subsidiaries have recorded DTAs of $85.5 million associated with accumulated federal, state and foreign 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 a valuation allowance of $47.1 million on the DTAs related to these state and foreign NOL carryforwards as of September 29, 2023. State NOL carryforwards generally begin to expire in 2024 and foreign NOL carryforwards generally have no expiration date. As of September 29, 2023, the Company has $74.4 million of FTC carryforwards, which begin to expire in 2027, along with $0.8 million of general business credits, which begin to expire in 2044, and $10.1 million of interest restriction carryforwards, which do not expire. The Company has a valuation allowance of $31.1 million on the DTAs related to FTC carryforwards as of September 29, 2023. Undistributed earnings of certain foreign subsidiaries for which no DTL was recorded amounted to approximately $455.9 million and $347.2 million as of September 29, 2023 and September 30, 2022, respectively. The foreign withholding tax cost associated with remitting these earnings is $27.3 million and $20.4 million as of September 29, 2023 and September 30, 2022, respectively. Such amounts have not been accrued by the Company as it believes those foreign earnings are permanently reinvested. The Company has $70.3 million of total gross unrecognized tax benefits as of September 29, 2023, of which $39.9 million, if recognized, would impact the effective tax rate and $30.4 million would result in an adjustment to the DTL or payable. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits follows (in thousands):
| September 29, 2023 |  | September 30, 2022
Balance, beginning of year | $ | 80,220 |  |  | $ | 65,414 |
Additions based on tax positions taken in the current year | 4,433 |  |  | 863 |
Additions for tax positions taken in prior years(1) | — |  |  | 19,610 |
Reductions for remeasurements, settlements and payments(2) | (12,451) |  |  | (4,212) |
Reductions due to statute expiration | (1,889) |  |  | (1,455) |
Balance, end of year | $ | 70,313 |  |  | $ | 80,220 |
(1) | Fiscal 2022 includes a $16.2 million reclass from deferred income tax liabilities for a position taken in prior years primarily related to tangible property.
(2) | Fiscal 2023 includes a remeasurement of foreign tax credit assets that are available to reduce a position taken in prior years.
The Company has $11.4 million and $9.7 million accrued for interest and penalties as of September 29, 2023 and September 30, 2022, respectively, on the Consolidated Balance Sheets and recorded $1.7 million, $3.1 million and $2.0 million in interest and penalties during fiscal 2023, fiscal 2022 and fiscal 2021, respectively in the Consolidated Statements of Income (Loss). Interest and penalties related to unrecognized tax benefits are recorded in "Provision (Benefit) for Income Taxes" on the Consolidated Statements of Income (Loss). The Company has $9.6 million of FTCs that will reduce the gross unrecognized tax benefit. 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 United States 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 United States 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.

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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 -Topic 946 -SubTopic 20 -Name Accounting Standards Codification -Section 50 -Paragraph 13 -Publisher FASB -URI https://asc.fasb.org//1943274/2147480990/946-20-50-13 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 235 -SubTopic 10 -Name Accounting Standards Codification -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(h)(2)) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480678/235-10-S99-1 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//740/tableOfContent Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 14 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482685/740-10-50-14 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 21 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482685/740-10-50-21 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -SubTopic 270 -Name Accounting Standards Codification -Section 50 -Paragraph 1 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482526/740-270-50-1 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 17 -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147482685/740-10-50-17 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -SubTopic 10 -Name Accounting Standards Codification -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -Publisher FASB -URI https://asc.fasb.org//1943274/2147479360/740-10-S99-1 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -SubTopic 10 -Name Accounting Standards Codification -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -Publisher FASB -URI https://asc.fasb.org//1943274/2147479360/740-10-S99-2 Reference 10: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -SubTopic 30 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Subparagraph (a) -Publisher FASB -URI https://asc.fasb.org//1943274/2147482603/740-30-50-2 + Details
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