Income Taxes

12 Months Ended

Sep. 30, 2022

Income Tax Disclosure [Abstract]

INCOME TAXES

9.    INCOME TAXES

Income before income taxes consists of the following components (in millions):

	Fiscal Years Ended
	September 30, 2022		October 1, 2021		October 2, 2020
United States	$	663.0	$	804.7	$	435.9
Foreign	813.6		794.0		455.8
Income before income taxes	$	1,476.6	$	1,598.7	$	891.7

The provision for income taxes consists of the following components (in millions):

	Fiscal Years Ended
	September 30, 2022		October 1, 2021		October 2, 2020
Current tax expense (benefit):
Federal	$	88.7	$	87.5	$	44.4
State	0.1		—		—
Foreign	51.5		70.7		49.5
	140.3		158.2		93.9
Deferred tax expense (benefit):
Federal	43.9		(45.8)		(6.8)
State	0.1		(0.1)		—
Foreign	17.1		(11.9)		(10.2)
	61.1		(57.8)		(17.0)
Provision for income taxes	$	201.4	$	100.4	$	76.9

The actual income tax expense is different than that which would have been computed by applying the federal statutory tax rate to income before income taxes. A reconciliation of income tax expense as computed at the United States federal statutory income tax rate to the provision for income tax expense is as follows (in millions):

	Fiscal Years Ended
	September 30, 2022		October 1, 2021		October 2, 2020
Tax expense at United States statutory rate	$	310.1	$	335.7	$	187.3
Foreign tax rate difference	(139.2)		(155.2)		(86.6)
Tax on deemed repatriation	—		—		0.2
Effect of stock compensation	(20.1)		(13.5)		(10.3)
Research and development credits	(26.1)		(27.0)		(23.0)
Change in tax reserve	7.4		(51.5)		9.6
Global Intangible Low-Taxed Income	70.0		69.0		35.9
Foreign Derived Intangible Income	(39.9)		(79.7)		(41.2)
Other, net	39.2		22.6		5.0
Provision for income taxes	$	201.4	$	100.4	$	76.9

The Company operates in foreign jurisdictions with income tax rates lower than the United States tax rate of 21.0% for the fiscal years ended September 30, 2022, October 1, 2021, and October 2, 2020.

The Company’s federal income tax returns for fiscal 2019 and fiscal 2018 are currently under Internal Revenue Service examination. The Company had accrued $18.6 million and $139.7 million of the deemed repatriation tax in short-term and long-term liabilities within the consolidated balance sheet, respectively, as of September 30, 2022. The Company had accrued $18.6 million and $158.4 million of the deemed repatriation tax in short-term and long-term liabilities within the consolidated balance sheet, respectively, as of October 1, 2021. The remaining repatriation tax is payable over the next four years: $18.6 million in 2023, $34.9 million in 2024, $46.6 million in 2025, and $58.2 million in 2026.

On October 2, 2010, the Company expanded its presence in Asia by launching operations in Singapore. The Company operates under a tax holiday in Singapore, which is effective through September 30, 2030. The current tax holiday is conditioned upon the Company’s compliance with certain employment and investment thresholds in Singapore. The impact of the tax holiday decreased Singapore taxes owed by $96.6 million, $99.5 million, and $63.1 million for the fiscal years ended September 30, 2022, October 1, 2021, and October 2, 2020, respectively, which resulted in tax benefits of $0.59, $0.60, and $0.37 of diluted earnings per share, respectively. These tax benefits were partially offset by an increase in tax expense on GILTI.

Deferred income tax assets and liabilities consist of the tax effects of temporary differences related to the following (in millions):

	Fiscal Years Ended
	September 30, 2022		October 1, 2021
Deferred tax assets:
Inventory	$	21.4	$	15.8
Accrued compensation and benefits	11.6		12.7
Product returns, allowances, and warranty	1.5		0.9
Share-based and other deferred compensation	27.8		31.8
Net operating loss carry forwards	14.0		7.1
Non-United States tax credits	17.0		17.0
State tax credits	138.0		126.9
Operating leases	56.8		45.4
Prepayments	—		42.1
Property, plant, and equipment	31.4		35.8
Intangible assets	20.4		—
Other, net	8.7		15.0
Deferred tax assets	348.6		350.5
Less valuation allowance	(161.4)		(150.0)
Net deferred tax assets	187.2		200.5
Deferred tax liabilities:
Property, plant, and equipment	(59.2)		(38.6)
Intangible assets	(4.7)		(5.3)
Operating leases	(51.5)		(40.4)
Other, net	(39.7)		(15.6)
Net deferred tax liabilities	(155.1)		(99.9)
Total net deferred tax assets	$	32.1	$	100.6

The deferred tax assets and liabilities based on tax jurisdictions are presented on our Consolidated Balance Sheets as follows:

	As of
	September 30, 2022		October 1, 2021
Deferred tax assets	$	52.7	$	119.5
Deferred tax liabilities	(20.6)		(18.9)
Net deferred tax asset	$	32.1	$	100.6

In accordance with GAAP, management has determined that it is more likely than not that a portion of the Company’s historic and current year income tax benefits will not be realized. As of September 30, 2022, the Company has a valuation allowance of $161.4 million. This valuation allowance is comprised of $136.6 million related to United States tax credits, $4.8 million related to United States state net operating loss carry forwards, and $20.0 million related to foreign deferred tax assets. The United States tax credits relate primarily to California research tax credits that can be carried forward indefinitely, for which the Company has provided a full valuation allowance. The Company does not anticipate sufficient taxable income or tax liability to utilize these United States and foreign credits. If these benefits are recognized in a future period, the valuation allowance on deferred tax assets will be reversed and up to a $161.4 million income tax benefit may be recognized. The Company will need to generate $130.6 million of future United States federal taxable income to utilize its United States deferred tax assets, excluding state deferred tax assets with a full valuation allowance, as of September 30, 2022. The Company believes that future reversals of taxable temporary differences, and its forecast of continued earnings in its domestic and foreign jurisdictions, support its decision to not record a valuation allowance on other deferred tax assets. The Company will continue to assess its valuation allowance in future periods. The net valuation allowance increased by $11.4 million and $12.6 million in fiscal 2022 and fiscal 2021, respectively, primarily related to increases for foreign and state net operating loss and tax credit carryovers.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (in millions):

	Unrecognized tax benefits
Balance at October 1, 2021	$	55.3
Decreases based on positions related to prior years	(2.1)
Increases based on positions related to current year	9.3
Balance at September 30, 2022	$	62.5

Of the total unrecognized tax benefits at September 30, 2022, $40.1 million would impact the effective tax rate, if recognized. The remaining unrecognized tax benefits would not impact the effective tax rate, if recognized, due to the Company’s valuation allowance and certain positions that were required to be capitalized.

The Company anticipates reversals within the next 12 months related to items such as the lapse of the statute of limitations, audit closures, and other items that occur in the normal course of business. Due to open examinations, an estimate of anticipated reversals within the next 12 months cannot be made. During fiscal 2022 and fiscal 2020, the Company recognized $1.2 million and $4.6 million, respectively, of interest or penalties related to unrecognized tax benefits. During fiscal 2021, the Company recognized an $11.6 million benefit for interest or penalties related to unrecognized tax benefits. Accrued interest and penalties of $5.7 million and $4.5 million related to uncertain tax positions have been included in long-term tax liabilities within the consolidated balance sheet as of September 30, 2022, and October 1, 2021, respectively.

The Company’s major tax jurisdictions as of September 30, 2022, are the United States, California, Canada, Mexico, Japan, and Singapore. For the United States, the Company has open tax years dating back to fiscal 2018. For California, the Company has open tax years dating back to fiscal 2000 due to the carry forward of tax attributes. For Canada, the Company has open tax years dating back to fiscal 2015. For Mexico, the Company has open tax years back to fiscal 2014. For Japan, the Company has open tax years back to fiscal 2016. For Singapore, the Company has open tax years dating back to fiscal 2016. The Company is subject to audit examinations by the respective taxing authorities on a periodic basis, of which the results could impact its financial position, results of operations, or cash flows.