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Income Taxes | 12 Months Ended
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Sep. 27, 2024
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 for Income Taxes from Continuing Operations 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 from Continuing Operations Before Income Taxes by source of income are as follows (in thousands):
|  | Fiscal Year Ended
|  | September 27, 2024 |  | September 29, 2023 |  | September 30, 2022
United States(1) |  | $ | 234,926 |  |  | $ | 119,543 |  |  | $ | (49,276) |
Non-United States(2) |  | 129,939 |  |  | 443,981 |  |  | 96,490 |
|  | $ | 364,865 |  |  | $ | 563,524 |  |  | $ | 47,214 |
(1) | Fiscal 2024 includes gains from sale of equity investments (see Note 1).
(2) | Fiscal 2023 includes gains from sale of equity investments (see Note 1).
The Provision for Income Taxes from Continuing Operations consists of the following (in thousands):
|  | Fiscal Year Ended
|  | September 27, 2024 |  | September 29, 2023 |  | September 30, 2022
Current: |  |  |  |  |  |
Federal |  | $ | 68,903 |  |  | $ | (5,119) |  |  | $ | (23,014) |
State and local |  | 14,565 |  |  | 4,916 |  |  | (851) |
Non-United States |  | 26,827 |  |  | 16,471 |  |  | 16,390 |
|  | 110,295 |  |  | 16,268 |  |  | (7,475) |
Deferred: |  |  |  |  |  |
Federal(1) |  | (15,761) |  |  | 90,769 |  |  | 17,600 |
State and local |  | 2,915 |  |  | 7,199 |  |  | (1,567) |
Non-United States |  | 5,523 |  |  | 2,190 |  |  | (125) |
|  | (7,323) |  |  | 100,158 |  |  | 15,908 |
|  | $ | 102,972 |  |  | $ | 116,426 |  |  | $ | 8,433 |
(1) | Fiscal 2023 increase in deferred tax expense is a result of the utilization of tax credit carryforward assets.
Current taxes receivable of $3.8 million and $10.2 million at September 27, 2024 and September 29, 2023, respectively, are included in "Prepayments and other current assets" on the Consolidated Balance Sheets. Current income taxes payable of $19.3 million and $24.5 million at September 27, 2024 and September 29, 2023, respectively, are included in "Accrued expenses and other current liabilities" on the Consolidated Balance Sheets. The Provision for Income Taxes from Continuing Operations varies from the amount determined by applying the United States Federal statutory rate to Income from Continuing Operations Before Income Taxes as a result of the following (all percentages are as a percentage of Income from Continuing Operations Before Income Taxes):
|  | Fiscal Year Ended
|  | September 27, 2024 |  | September 29, 2023 |  | September 30, 2022
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 |  | 3.8 |  |  | 1.7 |  |  | 5.2 |
Foreign taxes |  | 3.3 |  |  | 1.7 |  |  | 18.4 |
Reduction of foreign valuation allowances |  | (0.7) |  |  | (0.6) |  |  | (11.5) |
Permanent book/tax differences |  | 2.6 |  |  | (0.8) |  |  | 13.2 |
Uncertain tax positions |  | 0.4 |  |  | 0.8 |  |  | 5.4 |
Foreign tax credit valuation allowance |  | 0.3 |  |  | (0.8) |  |  | (1.5) |
Sale of investments(1) |  | — |  |  | (0.5) |  |  | — |
Pennsylvania Rate Change Impact |  | — |  |  | — |  |  | (8.1) |
Tax credits & other |  | (2.5) |  |  | (1.8) |  |  | (24.2) |
Effective income tax rate |  | 28.2 | % |  | 20.7 | % |  | 17.9 | %
(1) | Includes mainly capital tax gains related to the sale of the Company's equity investment in AIM Services Co., Ltd. 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 2024, fiscal 2023 and fiscal 2022, the Company recorded a benefit to the "Provision for Income Taxes from Continuing Operations" within the Consolidated Statements of Income of $3.8 million, $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. 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, except where a valuation allowance has been established. During fiscal 2023, the Company recorded a net expense to the "Provision for Income Taxes from Continuing Operations" on the Consolidated Statements of Income 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 $3.8 million to the "Provision for Income Taxes from Continuing Operations" within the Consolidated Statements of Income during fiscal 2022. As of September 27, 2024 and September 29, 2023, the components of Deferred Income Taxes are as follows (in thousands):
|  | September 27, 2024 |  | September 29, 2023
Deferred tax liabilities: |  |  |  |
Derivatives |  | $ | 12,816 |  |  | $ | 38,339 |
Property and equipment |  | 2,023 |  |  | — |
Investments |  | — |  |  | 13,864 |
Other intangible assets, including goodwill |  | 580,138 |  |  | 556,708 |
Inventory |  | — |  |  | 743 |
Operating Lease Right-of-use Assets |  | 46,729 |  |  | 46,989 |
Computer software costs and other |  | 23,283 |  |  | 23,172 |
Gross deferred tax liability |  | 664,989 |  |  | 679,815 |
Deferred tax assets: |  |  |  |
Investments |  | 8,721 |  |  | — |
Inventory |  | 6,261 |  |  | — |
Insurance |  | 14,670 |  |  | 13,110 |
Property and Equipment |  | — |  |  | 1,755 |
Employee compensation and benefits |  | 93,102 |  |  | 103,839 |
Accruals and allowances |  | 17,716 |  |  | 9,647 |
Operating lease liabilities |  | 56,532 |  |  | 57,898 |
NOL/credit carryforwards and other |  | 193,152 |  |  | 187,467 |
Gross deferred tax asset, before valuation allowances |  | 390,154 |  |  | 373,716 |
Valuation allowances |  | (80,552) |  |  | (78,194) |
Net deferred tax liability |  | $ | 355,387 |  |  | $ | 384,293 |
Rollforward of the valuation allowance is as follows:
|  | September 27, 2024 |  | September 29, 2023
Balance, beginning of year |  | $ | (78,194) |  |  | $ | (83,827) |
Additions(1) |  | (5,810) |  |  | — |
Subtractions(2) |  | 3,452 |  |  | 5,633 |
Balance, end of year |  | $ | (80,552) |  |  | $ | (78,194) |
(1) | The Additions are mainly driven by a valuation allowance recorded related to pension assets in the FSS International segment.
(2) | The Subtractions 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.
DTLs of $375.4 million and $410.9 million as of September 27, 2024 and September 29, 2023, respectively, are included in "Deferred Income Taxes" on the Consolidated Balance Sheets. DTAs of $20.0 million and $26.6 million as of September 27, 2024 and September 29, 2023, respectively, are included in "Other Assets" on the Consolidated Balance Sheets. As of September 27, 2024, certain subsidiaries have recorded DTAs of $72.1 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 $48.2 million on the DTAs related to these state and foreign NOL carryforwards as of September 27, 2024. State NOL carryforwards generally will begin to expire in 2025 and foreign NOL carryforwards generally have no expiration date. As of September 27, 2024, the Company has $61.7 million of FTC carryforwards, which begin to expire in 2027, along with $3.4 million of general business credits, which begin to expire in 2045, and $34.1 million of interest restriction carryforwards, which do not expire. The Company has a valuation allowance of $32.3 million on the DTAs related to FTC carryforwards as of September 27, 2024. Undistributed earnings of certain foreign subsidiaries for which no DTL was recorded amounted to approximately $446.7 million and $364.4 million as of September 27, 2024 and September 29, 2023, respectively. The foreign withholding tax cost associated with remitting these earnings is $26.8 million and $22.7 million as of September 27, 2024 and September 29, 2023, respectively. Such amounts have not been accrued by the Company as it believes those foreign earnings are permanently reinvested. The Company has $70.2 million of total gross unrecognized tax benefits as of September 27, 2024, of which $41.9 million, if recognized, would impact the effective tax rate and $28.3 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 27, 2024 |  | September 29, 2023
Balance, beginning of year | $ | 69,128 |  |  | $ | 80,220 |
Additions based on tax positions taken in the current year | 754 |  |  | 4,433 |
Additions for tax positions taken in prior years | 3,370 |  |  | — |
Reductions for remeasurements, settlements and payments(1) | (1,493) |  |  | (13,636) |
Reductions due to statute expiration | (1,571) |  |  | (1,889) |
Balance, end of year | $ | 70,188 |  |  | $ | 69,128 |
(1) | Fiscal 2023 includes a remeasurement of foreign tax credit assets that are available to reduce a position taken in prior years.
The Company has $14.1 million and $11.4 million accrued for interest and penalties as of September 27, 2024 and September 29, 2023, respectively, on the Consolidated Balance Sheets and recorded $2.8 million, $1.7 million and $3.1 million in interest and penalties during fiscal 2024, fiscal 2023 and fiscal 2022, respectively in the Consolidated Statements of Income. Interest and penalties related to unrecognized tax benefits are recorded in "Provision for Income Taxes from Continuing Operations" on the Consolidated Statements of Income. 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. In response to the development of the global economy toward digitalization, the Organization for Economic Co-operation & Development (“OECD”) released the Pillar Two Global Anti-Base Erosion Model Rules (“Pillar Two”). Under Pillar Two, multinational companies with consolidated revenue greater than €750 million will be subject to a minimum effective tax rate of 15.0% within each respective country. Guided by the OECD framework, more than 140 countries have agreed to enact Pillar Two legislation. The Company currently operates in several countries which will be subject to Pillar Two. Based on an analysis of the Pillar Two transitional safe harbours and the current financials, the Company does not expect Pillar Two to have a material effect. The Company will continue to monitor legislative developments and evaluate financial results for changes in the expected impact.

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