Income Taxes

12 Months Ended

Oct. 03, 2020

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

Detail of the provision (benefit) for income taxes from continuing operations consists of the following (in millions):

	2020		2019		2018
Federal	$	477	$	314	$	(431)
State	98		38		114
Foreign	18		29		26
	$	593	$	381	$	(291)
Current	$	575	$	304	$	583
Deferred	18		77		(874)
	$	593	$	381	$	(291)

The reasons for the difference between the statutory federal income tax rate and our effective income tax rate from continuing operations are as follows:

	2020		2019		2018
Federal income tax rate	21.0	%	21.0	%	24.5	%
State income taxes	2.9		2.8		3.2
Unrecognized tax benefits, net	(0.1)		(6.7)		(0.1)
Impact of the Tax Act	—		—		(38.4)
Domestic production deduction	—		—		(1.7)
Impairment and sale of non-protein businesses	—		—		3.2
Other	(1.5)		(1.0)		(1.5)
	22.3	%	16.1	%	(10.8)	%

During fiscal 2020, state tax expense, net of federal benefit, was $78 million.

During fiscal 2019, changes in unrecognized tax benefits decreased tax expense by $160 million, and state tax expense, excluding changes in unrecognized tax benefits and net of federal tax benefit, was $66 million.

During fiscal 2018, the domestic production deduction decreased tax expense by $46 million, and state tax expense, net of federal tax benefit, was $86 million. The change in federal tax rate from the Tax Act resulted in a tax benefit of $996 million related to deferred tax remeasurement. Additionally, favorable timing differences deductible in fiscal 2018 at the 24.5% blended tax rate but reversing in future years at 21% resulted in a $33 million tax benefit. The impacts of the non-deductible impairment and sale of certain assets in our non-protein businesses increased the effective tax rate by 3.2%.

Approximately $2,605 million, $2,275 million and $2,637 million of income from continuing operations before income taxes for fiscal 2020, 2019 and 2018, respectively, were from our operations based in the United States.

On December 22, 2017, President Trump signed into law the Tax Act. The Tax Act made significant changes to the U.S. tax code including, but not limited to, (1) reducing the corporate federal income tax rate from 35% to 21% effective January 1, 2018, (2) a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries, (3) the repeal of the domestic production activity deduction beginning with our fiscal 2019, and (4) new provisions designed to tax global intangible low-taxed income and to allow a deduction for foreign-derived intangible income beginning with our fiscal 2019.

Under generally accepted accounting principles (“U.S. GAAP”), specifically ASC Topic 740, Income Taxes, the tax effects of changes in tax laws must be recognized in the period in which the law is enacted, or December 22, 2017, for the Tax Act. ASC 740 also requires deferred tax assets and liabilities to be measured at the enacted tax rate expected to apply when temporary differences are to be realized or settled. Thus, at the date of enactment, the Company’s deferred taxes were remeasured based upon the new tax rates. The change in deferred taxes was recorded as an adjustment to our fiscal 2018 deferred tax provision.

We recognize deferred income taxes for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The tax effects of major items recorded as deferred tax assets and liabilities as of October 3, 2020, and September 28, 2019, are as follows (in millions):

	2020				2019
	Assets		Liabilities		Assets		Liabilities
Property, plant and equipment	$	—	$	923	$	—	$	891
Intangible assets	—		1,591		—		1,624
ROU assets	—		154		—		—
Accrued expenses	341		—		297		—
Lease liabilities	129		—		—		—
Net operating loss and other carryforwards	137		—		99		—
Other	149		265		131		231
	$	756	$	2,933	$	527	$	2,746
Valuation allowance	$	(127)			$	(86)
Net deferred tax liability			$	2,304			$	2,305

At October 3, 2020, our gross state tax net operating loss carryforwards approximated $799 million, of which $747 million expire in fiscal years 2021 through 2039, and the remainder has no expiration. Gross foreign net operating loss carryforwards approximated $238 million, of which $104 million expire in fiscal years 2021 through 2032, and the remainder has no expiration. We also have tax credit carryforwards of approximately $48 million, of which $46 million expire in fiscal years 2021 through 2034, and the remainder has no expiration.

We have accumulated undistributed earnings of foreign subsidiaries aggregating approximately $318 million and $252 million at October 3, 2020, and September 28, 2019, respectively. The Tax Act generally eliminates U.S. federal income taxes on dividends from foreign subsidiaries after December 31, 2017. As a result, our intention is that excess cash held by our foreign subsidiaries that is not subject to regulatory restrictions will be repatriated net of applicable withholding taxes which are expected to be immaterial. The remainder of accumulated undistributed earnings are expected to be indefinitely reinvested outside of the United States. If these earnings were distributed in the form of dividends or otherwise, we could be subject to state income taxes and withholding taxes payable to various foreign countries. Due to the uncertainty of the manner in which the undistributed earnings would be brought back to the United States and the tax laws in effect at that time, it is not currently practicable to estimate the tax liability that might be payable on the repatriation of these foreign earnings; however, we do not expect any tax due to be material.

The following table summarizes the activity related to our gross unrecognized tax benefits at October 3, 2020, September 28, 2019, and September 29, 2018 (in millions):

	2020		2019		2018
Balance as of the beginning of the year	$	169	$	308	$	316
Increases related to current year tax positions	21		20		19
Increases related to prior year tax positions	5		21		8
Reductions related to prior year tax positions	(9)		(17)		(18)
Reductions related to settlements	(3)		(9)		(8)
Reductions related to expirations of statutes of limitations	(18)		(154)		(9)
Balance as of the end of the year	$	165	$	169	$	308

The amount of unrecognized tax benefits, if recognized, that would impact our effective tax rate was $118 million at October 3, 2020 and $116 million at September 28, 2019. We classify interest and penalties on unrecognized tax benefits as income tax expense. At October 3, 2020, and September 28, 2019, before tax benefits, we had $51 million and $46 million, respectively, of accrued interest and penalties on unrecognized tax benefits.

As of October 3, 2020, certain United States federal income tax returns are subject to examination for fiscal years 2013 through 2019. We are also subject to income tax examinations by major state and foreign jurisdictions for fiscal years 2015 through 2019. We do not expect material changes to our unrecognized tax benefits during the next twelve months.