Income Taxes

12 Months Ended

Oct. 01, 2022

Income Taxes

Income Taxes

Note 13. Income Taxes

Domestic and foreign components of income before income taxes were as follows:

	Year Ended
	October 1,		October 2,		October 3,
	2022		2021		2020
	(Restated)
	(In thousands)
Domestic	$	145,671	$	174,936	$	88,450
Foreign		156,649		106,705		103,765
Total	$	302,320	$	281,641	$	192,215

The provision for income taxes consists of the following:

	Year Ended
	October 1,		October 2,		October 3,
	2022		2021		2020
	(Restated)
	(In thousands)
Federal:
Current	$	1,070	$	705	$	(917)
Deferred		25,399		28,809		7,666
State:
Current		1,711		3,677		1,500
Deferred		3,081		(302)		2,579
Foreign:
Current		31,241		(906)		46,376
Deferred		(566)		112		1,842
Total provision for income taxes	$	61,936	$	32,095	$	59,046

The Company’s provision for income taxes for 2022, 2021 and 2020 was $62 million (20% of income before taxes), $32 million (11% of income before taxes) and $59 million (31% of income before taxes), respectively.

The effective tax rates for 2022 and 2021 were lower than the expected U.S. statutory rate of 21% primarily due to a $16 million and $43 million tax benefit, respectively, resulting from the release of a foreign tax reserves due to lapse of time and expiration of statutes of limitations. The effective tax rate for 2020 is higher than the expected U.S. statutory rate of 21% primarily due to foreign operations that are taxed at rates higher than the U.S. statutory rate.

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities are as follows:

	As of
	October 1,		October 2,
	2022		2021
	(Restated)
	(In thousands)
Deferred tax assets:
U.S. net operating loss carryforwards	$	92,882	$	134,385
Foreign net operating loss carryforwards		109,416		112,516
Intangibles		25,099		24,219
Accruals not currently deductible		44,963		43,932
Property, plant and equipment		27,514		25,494
Tax credit carryforwards		18,465		17,250
Reserves not currently deductible		14,939		11,534
Stock compensation expense		6,365		7,677
Federal benefit of foreign operations		21,312		18,336
Derivatives and other impacts of OCI		838		7,637
Lease deferred tax asset		15,018		11,563
Other		1,915		—
Valuation allowance		(118,210)		(115,258)
Total deferred tax assets		260,516		299,285
Deferred tax liabilities on undistributed earnings		(14,775)		(14,775)
Deferred tax liabilities on branch operations		(24,182)		(30,000)
Revenue recognition		(1,572)		(1,702)
Lease deferred tax liability		(14,808)		(11,349)
Other		—		(2,495)
Net deferred tax assets	$	205,179	$	238,964
Recorded as:
Deferred tax assets	$	209,554	$	242,261
Deferred tax liabilities		(4,375)		(3,297)
Net deferred tax assets	$	205,179	$	238,964

A valuation allowance is established or maintained when, based on currently available information and other factors, it is more likely than not that all or a portion of the deferred tax assets will not be realized. The Company regularly assesses its valuation allowance against deferred tax assets on a jurisdiction by jurisdiction basis. The Company considers all available positive and negative evidence, including future reversals of temporary differences, projected future taxable income, tax planning strategies and recent financial results. Significant judgment is required in assessing the Company’s ability to generate revenue, gross profit, operating income and jurisdictional taxable income in future periods. The Company’s valuation allowance as of October 1, 2022 relates primarily to foreign net operating losses, with the exception of $14 million related to U.S. state net operating losses.

The Company provides deferred tax liabilities for the tax consequences associated with the undistributed earnings that are expected to be repatriated to subsidiaries’ parent unless the subsidiaries’ earnings are considered indefinitely reinvested. As of October 1, 2022, income taxes and foreign withholding taxes have not been provided for approximately $439 million of cumulative undistributed earnings of several non-U.S. subsidiaries. The Company intends to reinvest these earnings indefinitely in operations outside of the U.S. Determination of the amount of unrecognized deferred tax liabilities on these undistributed earnings is not practicable.

As of October 1, 2022, the Company has cumulative net operating loss carryforwards for federal, state and foreign tax purposes of $344 million, $357 million and $465 million, respectively. The federal and state net operating loss carryforwards begin expiring in fiscal years 2028 and 2023, respectively, and expire at various dates through September 29, 2035. Certain foreign net operating losses start expiring in 2023. However, the majority of foreign net operating losses carryforward indefinitely. As of October 1, 2022, the Company has federal tax credits of $21 million that expire between 2031 and 2042. There are certain restrictions on the utilization of net operating loss and tax credit carryforwards in the event of an “ownership change” as defined in the Internal Revenue Code. The utilization of certain net operating losses may be restricted due to changes in ownership and business operations.

Following is a reconciliation of the statutory federal tax rate to the Company’s effective tax rate:

	Year Ended
	October 1,		October 2,		October 3,
	2022		2021		2020
	(Restated)
Federal tax at statutory tax rate	21.00	%	21.00	%	21.00	%
Effect of foreign operations	3.52		7.99		13.60
Permanent items	0.08		(2.03)		(0.62)
Federal credits	(0.73)		(0.54)		(1.37)
Other	0.59		(0.20)		(0.06)
State income taxes, net of federal benefit	1.60		0.91		1.94
Release of foreign tax reserves	(5.57)		(15.73)		(3.77)
Effective tax rate	20.49	%	11.40	%	30.72	%

A reconciliation of the beginning and ending amount of total liabilities for unrecognized tax benefits, excluding accrued penalties and interest, is as follows:

	Year Ended
	October 1,		October 2,		October 3,
	2022		2021		2020
	(In thousands)
Balance, beginning of year	$	67,781	$	74,612	$	66,677
Increase (decrease) related to prior year tax positions		(4,456)		6,063		1,327
Increase related to current year tax positions		7,154		7,349		9,907
Settlements		(7,596)		—		—
Decrease related to lapse of time and expiration of statutes of limitations		(9,331)		(20,243)		(3,299)
Balance, end of year	$	53,552	$	67,781	$	74,612

The Company had reserves of $11 million and $17 million as of October 1, 2022 and October 2, 2021, respectively, for the payment of interest and penalties relating to unrecognized tax benefits. During 2022, the Company recognized an income tax benefit for interest and penalties of $3 million due to lapse of time and expiration of statutes of limitations compared to an income tax benefit of $23 million in 2021. The Company recognizes interest and penalties related to liabilities for unrecognized tax benefits as a component of income tax expense. Should the Company be able to ultimately recognize all of these uncertain tax positions, it would result in a benefit to net income of $44 million in 2022.

The Company conducts business globally and, as a result, files income tax returns in the United States federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world. The Company is currently being audited by the Internal Revenue Service for tax years 2008 through 2010. To the extent the final tax liabilities are different from the amounts accrued, this would result in an increase or decrease in net operating loss carryforwards which could materially impact tax expense. Additionally, the Company is being audited by various state tax agencies and certain foreign countries. To the extent the final tax liabilities are different from the amounts accrued, the increases or decreases would be recorded as income tax expense or benefit in the consolidated statements of income. Although the Company believes that the resolution of these audits will not have a material adverse impact on the Company’s results of operations, the outcome is subject to uncertainty.

In general, the Company is no longer subject to United States federal or state income tax examinations for years before 2003, and to foreign examinations for years prior to 2006 in its major foreign jurisdictions. It is reasonably possible that the balance of gross unrecognized tax benefits could decrease in the next 12 months by approximately $9 million related to payments, the resolution of audits and expiration of statutes of limitations. In addition, there could be a corresponding decrease in accrued interest and penalties of approximately $4 million.