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Income Taxes
 12 Months Ended
Sep. 28, 2024
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The Company’s income before income taxes consisted of the following:
 
Years Ended
September 28, 2024September 30, 2023September 24, 2022
Domestic$609.4 $861.4 $1,340.3 
Foreign255.7 (185.3)247.9 
$865.1 $676.1 $1,588.2 
The provision (benefit) for income taxes contained the following components:
 
Years Ended
September 28, 2024September 30, 2023September 24, 2022
Federal:
Current$91.6 $250.6 $298.6 
Deferred(50.9)(72.1)(129.8)
40.7 178.5 168.8 
State:
Current14.2 45.9 54.8 
Deferred(7.5)(9.4)(9.5)
6.7 36.5 45.3 
Foreign:
Current41.9 32.7 99.0 
Deferred(13.7)(27.6)(26.9)
28.2 5.1 72.1 
$75.6 $220.1 $286.2 
The income tax provision differed from the tax provision computed at the U.S. federal statutory rate due to the following:
 
Years Ended
September 28, 2024September 30, 2023September 24, 2022
Income tax provision at federal statutory rate21.0 %21.0 %21.0 %
Increase (decrease) in tax resulting from:
Cynosure loss on sale and carryback— — (1.2)
State income taxes, net of federal benefit2.5 4.1 2.9 
U.S. tax on foreign earnings0.5 (1.0)(2.6)
Internal Restructuring
— — (0.9)
Tax credits(1.6)(1.1)(0.5)
Unrecognized tax benefits3.9 3.5 0.2 
Compensation1.0 0.8 0.2 
Foreign rate differential(6.8)(4.8)(0.8)
Change in deferred tax
— — 0.4 
Assets held-for-sale charge
— 1.5 — 
Change in valuation allowance2.7 8.2 0.4 
Return to provision
(1.2)(1.9)(0.7)
Worthless stock deduction
(12.4)— — 
Other(0.9)2.3 (0.4)
8.7 %32.6 %18.0 %
The Company’s effective tax rate for fiscal 2024 was lower than the U.S. statutory tax rate primarily due to a one-time tax benefit of $107.2 million related to a worthless stock deduction on an investment in one of the Company’s international subsidiaries recorded in the first quarter of fiscal 2024, the U.S. deduction for foreign derived intangible income, and the geographic mix of income earned by the Company’s international subsidiaries, and federal and state tax credits.
The Company's effective tax rate for fiscal 2023 was higher than the U.S. statutory tax rate primarily due to the tax effect of the SSI ultrasound imaging assets held-for-sale charge, income tax reserves, the global intangible low-taxed income inclusion, and state income taxes, partially offset by the impact of the U.S. deduction for foreign derived intangible income, and the geographic mix of income earned by our international subsidiaries.
The Company's effective tax rate for fiscal 2022 was lower than the U.S. statutory tax rate primarily due to the impact of the U.S. deduction for foreign derived intangible income, reserve releases resulting from statute of limitations expirations and favorable audit settlements (net of reserve additions for uncertain tax positions), the geographic mix of income earned by the
Company's international subsidiaries and a tax benefit related to an internal restructuring, partially offset by state income taxes and the global intangible low-taxed income inclusion.
The Company obtains tax incentives through the Free Trade Zone Regime offered in Costa Rica which allows 100 percent exemption from income tax in the first eight years of operations and 50 percent exemption in the following four years. This tax incentive resulted in income tax savings of $79.8 million and $45.5 million, or $0.34 and $0.18 per share to diluted net income in fiscal years 2024 and 2023, respectively. The tax incentive for 100 percent exemption from income tax expires in fiscal year 2029, with the 50 percent exemption to expire in fiscal year 2033. The Company’s historical practice has been to renew, extend, or obtain new tax incentive grants upon expiration of existing tax incentive grants. If the Company is not able to renew, extend, or obtain new tax incentive grants, the expiration of existing tax incentive grants could have a material impact on the Company’s financial results in future periods. Incentives in fiscal years prior to 2023 were not material to the Company's consolidated financial statements.
The Company’s significant deferred tax assets and liabilities were as follows:
September 28, 2024September 30, 2023
Deferred tax assets
Net operating loss and other tax carryforwards
$137.1 $125.8 
Capitalized research and development
96.8 70.1 
Non-deductible accruals41.0 32.7 
Non-deductible reserves37.8 42.8 
Stock-based compensation21.9 19.8 
Nonqualified deferred compensation plan15.9 13.5 
Lease liability26.2 14.0 
Other temporary differences21.0 5.9 
397.7 324.6 
Less: valuation allowance(143.1)(114.7)
$254.6 $209.9 
Deferred tax liabilities
Depreciation and amortization$(161.8)$(160.3)
Right of use asset(23.4)(13.2)
$(185.2)$(173.5)
$69.4 $36.4 
Under ASC 740, Accounting for Income Taxes (ASC 740), the Company can only recognize the future benefit of deferred tax assets to the extent that it is “more likely than not” that these assets will be realized. After considering all available positive and negative evidence, the Company establishes a valuation allowance against specifically identified deferred tax assets because it is more-likely-than-not that these assets will not be realized. In making this determination, the Company considers numerous factors including historical profitability, estimated future taxable income and the character of such income. The valuation allowance increased $28.4 million in fiscal 2024 from fiscal 2023 primarily due to valuation allowances recorded against net operating loss carryforwards of certain foreign subsidiaries.
As of September 28, 2024, the Company had $22.5 million, $172.1 million, and $275.2 million in gross federal, state, and foreign net operating losses, respectively, $4.6 million and $2.1 million in federal and state credit carryforwards, respectively, and $438.9 million and $134.2 million in gross state and foreign capital loss carryforwards, respectively. These losses, credits, and capital loss carryforwards expire between 2025 and 2044, except for $97.5 million in losses, $4.2 million in credits, and $134.2 million in capital loss carryforwards that have unlimited carryforward periods. The state and foreign net operating losses include $107.7 million and $208.6 million, respectively, and the state capital loss carryforwards include $438.9 million, that the Company expects will expire unutilized.
The Company has determined that unremitted foreign earnings are not considered indefinitely reinvested to the extent foreign earnings can be distributed without a significant tax cost. As such, the Company records foreign withholding tax liabilities related to the future repatriation of such earnings. The Company continues to indefinitely reinvest all other outside basis differences to the extent reversal would incur a significant tax liability. It is not practicable for the Company to calculate the unrecognized deferred tax liability related to such incremental tax costs on those outside basis differences.
The Company’s gross unrecognized tax benefits increased $16.7 million from fiscal 2023 to 2024 and was primarily due to intercompany transfer pricing for ordinary business operations and increases to prior year positions, which were partially offset by reserve releases resulting from statute of limitations expirations and audit settlements. The $8.9 million increase in gross unrecognized tax benefits from fiscal 2022 to 2023 was primarily due to intercompany transfer pricing for ordinary business operations and other current year positions, partially offset by reserve releases resulting from statute of limitations expirations and audit settlements. In the next twelve months it is reasonably possible that the Company will reduce its gross unrecognized tax benefits excluding interest by up to $8.3 million due to expiring statutes of limitations. The timing of the ultimate resolution of the Company’s examinations with relevant taxing authorities, which can include formal administrative and legal proceedings, and could have a significant impact on the reversal of unrecognized tax benefits, is difficult to predict. As a result, the Company is not able to provide a reasonably reliable estimate of the timing for reversals of unrecognized income tax benefits that are under examination.
The Company’s unrecognized income tax benefits activity for fiscal 2024, 2023 and 2022 was as follows:
202420232022
Balance at beginning of fiscal year$256.5 $247.6 $212.8 
Tax positions related to current year:
Additions7.8 6.8 45.9 
Tax positions related to prior years:
Additions related to change in estimate11.8 4.5 21.5 
Reductions(2.1)— (6.6)
Lapses in statutes of limitations and settlements(0.8)(2.4)(26.0)
Balance as of the end of the fiscal year$273.2 $256.5 $247.6 
As of fiscal 2024, 2023, and 2022 there were $213.9 million, $240.5 million, and $231.6 million of unrecognized tax benefits that if recognized would affect the annual effective tax rate.
The Company recognizes interest and penalties accrued related to unrecognized tax benefits as a component of income tax expense. During fiscal years 2024, 2023, and 2022, the Company recognized $20.3 million, $15.8 million, and $0.7 million in gross interest. The Company had gross accrued interest of $50.4 million and $30.1 million as of September 28, 2024 and September 30, 2023, respectively, and accrued penalties were not significant.
The Company and its subsidiaries are subject to examination by U.S. federal, state, and foreign tax authorities. The Company is currently undergoing several income tax audits including examinations by the U.S. Internal Revenue Service (fiscal years 2017-2020), U.K. HM Revenue and Customs (fiscal years 2016-2022) and various state tax authorities. Excluding jurisdictions under audit, the Company’s income tax returns are generally no longer subject to examination prior to fiscal year 2019.
Other Tax Accounting Pronouncements
ASU 2016-16 removes the prohibition in ASC 740 against the immediate recognition of the current and deferred income tax effects of intra-entity transfers of assets other than inventory. In accordance with ASU 2016-16, the Company recorded a $77.2 million increase to current income tax expense, and a $90.8 million decrease to deferred tax expense related to an internal restructuring for the year ended September 24, 2022. The net result was an increase to net income of $13.6 million, or $0.05 to diluted net income per share for the year ended September 24, 2022.
Non-Income Tax Matters
The Company is subject to tax examinations for value added, sales-based, payroll and other non-income tax items. A number of these examinations are ongoing in various jurisdictions. The Company takes certain non-income tax positions in the jurisdictions in which it operates and records loss contingencies pursuant to ASC 450, Contingencies (ASC 450). In the normal course of business, the Company's positions and conclusions related to its non-income tax positions could be challenged, resulting in assessments by governmental authorities. While the Company believes estimated losses previously recorded are reasonable, certain audits are still ongoing and additional charges could be recorded in the future.