Income Taxes

12 Months Ended

Oct. 02, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Income before income taxes, by geographic area, was as follows:

	Fiscal Year Ended
	October 2, 2022		October 3, 2021		September 27, 2020
	(in thousands)
Income before income taxes:
United States	$	262,428	$	211,222	$	209,443
Foreign	86,338		55,648		18,548
Total income before income taxes	$	348,766	$	266,870	$	227,991

Income tax expense consisted of the following:

	Fiscal Year Ended
	October 2, 2022		October 3, 2021		September 27, 2020
			(in thousands)
Current:
Federal	$	47,447	$	41,056	$	24,102
State	9,613		9,893		6,872
Foreign	26,332		18,887		20,398
Total current income tax expense	83,392		69,836		51,372
Deferred:
Federal	(424)		(6,034)		2,187
State	(382)		(2,060)		870
Foreign	3,016		(27,703)		(328)
Total deferred income tax expense (benefit)	2,210		(35,797)		2,729
Total income tax expense	$	85,602	$	34,039	$	54,101

Total income tax expense was different from the amount computed by applying the U.S. federal statutory rate to pre-tax income as follows:

	Fiscal Year Ended
	October 2, 2022	October 3, 2021	September 27, 2020
Tax at federal statutory rate	21.0%	21.0%	21.0%
State taxes, net of federal benefit	2.1	2.3	2.7
Research and Development ("R&D") credits	(1.0)	(2.6)	(2.2)
Tax differential on foreign earnings	1.0	0.9	0.7
Non-taxable foreign interest income	—	(1.0)	(1.1)
Goodwill	—	—	1.5
Stock compensation	(2.0)	(3.3)	(2.2)
Valuation allowance	0.2	(9.3)	1.6
Change in uncertain tax positions	(1.1)	1.7	0.4
Return to provision	1.4	(3.7)	0.8
Disallowed officer compensation	1.9	2.0	0.2
Cash repatriation	0.1	2.1	—
Unremitted earnings	(0.2)	1.0	—
Deferred tax adjustments	0.1	0.8	(1.3)
Other	1.0	0.9	1.6
Total income tax expense	24.5%	12.8%	23.7%

The effective tax rates for fiscal 2022, 2021 and 2020 were 24.5%, 12.8% and 23.7%, respectively. The fiscal 2021 effective tax rate reflects a non-recurring net tax benefit of $21.6 million, consisting of a valuation allowance in the United Kingdom that was released due to sufficient positive evidence being obtained in fiscal 2021. The valuation allowance was primarily related to net operating loss carry-forwards. We evaluated the positive evidence against any negative evidence and determined that it was more likely than not that the deferred tax assets would be realized. The primary factors used to assess the likelihood of realization were the past performance of the related entity and our forecast of future taxable income. In fiscal 2021, we repatriated approximately $80 million from Canada and recognized a related tax expense of $5.6 million. At that time, we also determined that our remaining undistributed earnings in Canada of approximately $20.1 million were no longer being indefinitely reinvested and recorded an additional deferred tax liability/expense of $3.1 million. The goodwill impairment

charge in fiscal 2020 did not have related tax benefits. Also, income tax expense was reduced by $10.3 million, $12.9 million and $8.3 million of excess tax benefits on share-based payments in fiscal 2022, 2021 and 2020, respectively.

Excluding the impact of the valuation allowance release, the non-deductible goodwill impairment charge, the Canadian repatriation and the excess tax benefits on share-based payments our effective tax rates in fiscal 2022, 2021 and 2020 were 27.5%, 25.7% and 25.6% respectively.

In fiscal 2022, the Inflation Reduction Act and the CHIPS and Science Act were signed into law. These Acts both contain new U.S. income tax provisions; however, we do not expect them to have a material impact on our consolidated financial statements.

We are currently under examination by the Internal Revenue Service for fiscal years 2018 and 2019, and the Canada Revenue Agency for fiscal years 2011 through 2016. We are also subject to various other state audits.

Temporary differences comprising the net deferred income tax asset shown on the accompanying consolidated balance sheets were as follows:

	Fiscal Year Ended
	October 2, 2022		October 3, 2021
	(in thousands)
Deferred Tax Assets:
State taxes	$	1,238	$	1,342
Reserves and contingent liabilities	5,023		6,662
Accounts receivable including the allowance for doubtful accounts	4,986		5,917
Accrued liabilities	35,973		41,657
Lease liabilities, operating leases	49,618		60,181
Stock-based compensation	2,925		3,560
Unbilled revenue	4,885		—
Loss carry-forwards	41,648		54,825
Valuation allowance	(12,286)		(13,040)
Total deferred tax assets	134,010		161,104
Deferred Tax Liabilities:
Unbilled revenue	—		(5,595)
Prepaid expense	(6,065)		(8,136)
Right-of-use assets, operating leases	(49,618)		(60,181)
Intangibles	(42,863)		(40,121)
Undistributed earnings	(2,200)		(3,136)
Property and equipment	(621)		(85)
Total deferred tax liabilities	(101,367)		(117,254)
Net deferred tax assets	$	32,643	$	43,850

Prospectively, from the date of the aforementioned repatriation, our earnings in Canada are not considered indefinitely reinvested and any potential tax liability that would be incurred upon repatriation is recognized currently with the related income. At October 2, 2022, undistributed earnings of our other foreign subsidiaries, primarily in Australia and the United Kingdom of approximately $81.7 million are expected to be indefinitely reinvested in these foreign countries. Accordingly, no provision for foreign withholding taxes has been made. Assuming the indefinitely reinvested foreign earnings were repatriated under the laws and rates applicable at October 2, 2022, the incremental taxes applicable to those earnings would not be material.

At October 2, 2022, we had available unused state net operating loss ("NOL") carry forwards of $43.7 million that expire at various dates from 2026 to 2037; and available foreign NOL carry forwards of $119.1 million, of which $17.9 million expire at various dates from 2023 to 2042, and $101.2 million have no expiration date. In addition, we had foreign capital loss carryforwards of $18.4 million and foreign research and development credits of $3.9 million that do not have expiration dates. We have performed an assessment of positive and negative evidence regarding the realization of the deferred tax assets. This

assessment included the evaluation of scheduled reversals of deferred tax liabilities, availability of carrybacks, cumulative losses in recent years, estimates of projected future taxable income and tax planning strategies. Although realization is not assured, based on our assessment, we have concluded that it is more likely than not that the assets will be realized except for the deferred tax assets related to the loss carry-forwards for which a valuation allowance of $12.3 million has been provided.

At October 2, 2022, we had $8.9 million of unrecognized tax benefits, all of which, if recognized, would affect our effective tax rate. It is reasonably possible that the amount of the unrecognized tax benefits with respect to certain of our unrecognized tax positions may significantly decrease in the next 12 months. These changes would be the result of ongoing examinations. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	Fiscal Year Ended
	October 2, 2022		October 3, 2021		September 27, 2020
	(in thousands)
Beginning balance	$	12,899	$	9,228	$	9,169
Additions for current fiscal year tax positions	—		2,171		700
Additions for prior fiscal year tax positions	—		1,500		—
Reductions for prior fiscal year tax positions	(3,014)		—		(641)
Settlements	(977)		—		—
Ending balance	$	8,908	$	12,899	$	9,228

We recognize potential interest and penalties related to unrecognized tax benefits in income tax expense. During fiscal years 2022, 2021 and 2020, we accrued additional interest and penalties of $0.5 million, $0.8 million and $0.8 million, respectively, and recorded reductions in accrued interest and penalties of $0.4 million, $0 and $0, respectively, as a result of audit settlements and other prior-year adjustments. The amount of interest and penalties accrued at October 2, 2022, October 3, 2021 and September 27, 2020 was $5.3 million, $5.2 million and $4.4 million, respectively.