Income Taxes

12 Months Ended

Oct. 01, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Income before income taxes, by geographic area, was as follows (in thousands):

	Fiscal Year Ended
	October 1, 2023		October 2, 2022		October 3, 2021
Income before income taxes:
United States	$	287,295	$	262,428	$	211,222
Foreign	113,683		86,338		55,648
Total income before income taxes	$	400,978	$	348,766	$	266,870

Income tax expense consisted of the following (in thousands):

	Fiscal Year Ended
	October 1, 2023		October 2, 2022		October 3, 2021
Current:
Federal	$	110,371	$	47,447	$	41,056
State	16,025		9,613		9,893
Foreign	28,970		26,332		18,887
Total current income tax expense	155,366		83,392		69,836
Deferred:
Federal	(18,062)		(424)		(6,034)
State	(4,976)		(382)		(2,060)
Foreign	(4,802)		3,016		(27,703)
Total deferred income tax (benefit) expense	(27,840)		2,210		(35,797)
Total income tax expense	$	127,526	$	85,602	$	34,039

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 1, 2023	October 2, 2022	October 3, 2021
Tax at federal statutory rate	21.0%	21.0%	21.0%
State taxes, net of federal benefit	2.2	2.1	2.3
Research and Development ("R&D") credits	(0.5)	(1.0)	(2.6)
Tax differential on foreign earnings	1.5	1.0	0.9
Non-taxable foreign interest income	—	—	(1.0)
Stock compensation	(0.4)	(2.0)	(3.3)
Valuation allowance	—	0.2	(9.3)
Change in uncertain tax positions	11.6	(1.1)	1.7
Return to provision	1.1	1.4	(3.7)
Disallowed officer compensation	1.2	1.9	2.0
Cash repatriation	—	0.1	2.1
Unremitted earnings	0.2	(0.2)	1.0
Hedging gain	(5.7)	—	—
Global intangible low-taxed income	0.5	—	—
Deferred tax adjustments	(1.0)	0.1	0.8
Other	0.1	1.0	0.9
Total income tax expense	31.8%	24.5%	12.8%

The effective tax rates for fiscal 2023, 2022 and 2021 were 31.8%, 24.5% and 12.8%, respectively. The fiscal 2023 income tax expense included non-operating income tax expenses totaling $20.6 million to (i) increase the tax liability for uncertain tax positions related to certain U.S. tax credits and an intercompany financing transaction, (ii) to recognize the tax liability for foreign earnings, primarily in the U.K. and Australia, that are no longer indefinitely reinvested. 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. Also, income tax expense was reduced by $4.6 million, $10.3 million and $12.9 million of excess tax benefits on share-based payments in fiscal 2023, 2022 and 2021, respectively.

Excluding the impact of increasing the tax liability for uncertain tax positions, the valuation allowance release, the foreign earnings repatriation and the excess tax benefits on share-based payments our effective tax rates in fiscal 2023, 2022 and 2021 were 27.8%, 27.5% and 25.7% respectively.

We are currently under examination by the Internal Revenue Service for fiscal years from 2018 to 2021, and the Canada Revenue Agency for fiscal 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 (in thousands):

	Fiscal Year Ended
	October 1, 2023		October 2, 2022
Deferred Tax Assets:
State taxes	$	2,686	$	1,238
Reserves and contingent liabilities	2,849		5,023
Accounts receivable including the allowance for doubtful accounts	5,323		4,986
Accrued liabilities	64,155		35,973
Lease liabilities, operating leases	53,437		49,618
Stock-based compensation	1,900		2,925
Unbilled revenue	3,090		4,885
Loss and other carry-forwards	62,777		41,648
Property and equipment	552		—
Capitalized research and development	17,778		—
Capped call transactions	12,696		—
Valuation allowance	(11,663)		(12,286)
Total deferred tax assets	215,580		134,010
Deferred Tax Liabilities:
Prepaid expense	(2,703)		(6,065)
Right-of-use assets, operating leases	(53,437)		(49,618)
Intangibles	(83,242)		(42,863)
Undistributed earnings	(1,453)		(2,200)
Property and equipment	—		(621)
Total deferred tax liabilities	(140,835)		(101,367)
Net deferred tax assets	$	74,745	$	32,643

Our foreign earnings 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 1, 2023, we had available unused federal net operating loss (“NOL”) carry forwards of $37.5 million that has no expiration date; state net operating loss carry forwards of $26.0 million that expire at various dates from 2024 to 2037; and available foreign NOL carry forwards of $170.8 million, of which $21.1 million expire at various dates from 2024 to 2043, and $149.7 million have no expiration date. In addition, we had foreign capital loss carryforwards of $18.4 million, foreign corporate interest restriction allowances of $6.2 million, and foreign research and development credits of $4.5 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 certain loss carry-forwards for which a valuation allowance of $11.7 million has been provided.

At October 1, 2023, we had $53.6 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 not 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 (in thousands):

	Fiscal Year Ended
	October 1, 2023		October 2, 2022		October 3, 2021
Beginning balance	$	8,908	$	12,899	$	9,228
Acquisition of RPS Group	6,012		—		—
Additions for current fiscal year tax positions	27,272		—		2,171
Additions for prior fiscal year tax positions	14,602		—		1,500
Reductions for prior fiscal year tax positions	(1,358)		(3,014)		—
Settlements	(1,817)		(977)		—
Ending balance	$	53,619	$	8,908	$	12,899

We recognize potential interest and penalties related to unrecognized tax benefits in income tax expense. During fiscal 2023, 2022 and 2021, we accrued additional interest and penalties of $4.6 million, $0.5 million and $0.8 million, respectively, and recorded reductions in accrued interest and penalties of $2.0 million, $0.4 million and $0, respectively, as a result of audit settlements and other prior-year adjustments. The amount of interest and penalties accrued at October 1, 2023, October 2, 2022 and October 3, 2021 was $8.0 million, $5.3 million and $5.2 million, respectively.