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TAXES ON INCOME | 12 Months Ended
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Sep. 27, 2024
Income Tax Disclosure [Abstract] |
TAXES ON INCOME | TAXES ON INCOME Income tax expense or benefit is based on reported income or loss before income taxes. Deferred income taxes reflect the effect of temporary differences between asset and liability amounts that are recognized for financial reporting purposes and the amounts that are recognized for income tax purposes. These deferred taxes are measured by applying currently enacted tax laws. Valuation allowances are recognized to reduce deferred tax assets to the amount that is more likely than not to be realized. Income tax expense (benefit) was as follows:
| Fiscal Years
(In millions) | 2024 |  | 2023 |  | 2022
Current income tax expense: |  |  |  |  |
Federal | $ | 9.7 |  |  | $ | 9.8 |  |  | $ | 3.7 |
State and local | 0.6 |  |  | 0.3 |  |  | 0.2 |
Foreign | 4.6 |  |  | 12.6 |  |  | 10.3 |
Total current | $ | 14.9 |  |  | $ | 22.7 |  |  | $ | 14.2 |
Deferred i ncome tax (benefit) expense: |  |  |  |  |
Federal | $ | 38.5 |  |  | $ | (38.0) |  |  | $ | 0.4 |
State and local | (1.1) |  |  | (0.2) |  |  | (0.9) |
Foreign | (0.1) |  |  | (1.9) |  |  | — |
Total deferred | 37.3 |  |  | (40.1) |  |  | (0.5) |
Income tax expense (benefit) | $ | 52.2 |  |  | $ | (17.4) |  |  | $ | 13.7 |
Income before taxes are generated from the following geographic areas:
| Fiscal Years
(In millions) | 2024 |  | 2023 |  | 2022
United States | $ | (15.1) |  |  | $ | (6.2) |  |  | $ | 16.4 |
Foreign | 20.1 |  |  | 37.5 |  |  | 28.1 |
Income before taxes | $ | 5.0 |  |  | $ | 31.3 |  |  | $ | 44.5 |
The effective tax rate differs from the U.S. federal statutory tax rate as a result of the following:
| Fiscal Years
| 2024 |  | 2023 |  | 2022
Federal statutory income tax rate | 21.0 | % |  | 21.0 | % |  | 21.0 | %
State and local taxes, net of federal tax benefit | (7.5) |  |  | 0.3 |  |  | (1.4) |
Statutory rate change impact on prior year deferreds | (0.3) |  |  | — |  |  | 1.1 |
Return to provision | (30.9) |  |  | (4.7) |  |  | (2.1) |
Research and development credit | (41.9) |  |  | (8.4) |  |  | (0.9) |
Foreign rate difference | (1.6) |  |  | 6.3 |  |  | 6.5 |
Share-based compensation | 43.6 |  |  | 3.8 |  |  | 1.0 |
Change in valuation allowance | 1,101.1 |  |  | (65.7) |  |  | 6.3 |
U.S. tax reform - international provisions | (32.0) |  |  | (9.2) |  |  | (4.6) |
Other | (7.5) |  |  | 1.0 |  |  | 3.9 |
Effective tax rate | 1,044.0 | % |  | (55.6) | % |  | 30.8 | %
During fiscal year 2024, the Company's effective tax rate varied from the U.S. federal statutory rate of 21% primarily due to the unfavorable impact of U.S. deferred tax attributes and losses in certain foreign jurisdictions for which a valuation allowance is provided, as well as profit in foreign jurisdictions with statutory tax rates greater than 21%. These unfavorable items were partially offset by the favorable impact of U.S. tax reform regarding international provision, R&D credits, and return to provision adjustments. During fiscal year 2023, the Company’s effective tax rate varied from the U.S. federal statutory rate of 21% primarily due to the favorable impact of the release of the U.S. valuation allowance, U.S. tax reform regarding international provisions, R&D credits, and return to provision adjustments. These favorable items were partially offset by the unfavorable impact of profit in foreign jurisdictions with statutory tax rates greater than 21%. During fiscal year 2022, the Company’s effective tax rate varied from the U.S. federal statutory rate of 21% primarily due to the unfavorable impact of profit in foreign jurisdictions with statutory tax rates greater than 21% and also U.S. deferred tax attributes and losses in certain foreign jurisdictions for which a valuation allowance is provided. These unfavorable items are partially offset by the favorable impact of U.S. tax reform international provisions, return to provision adjustments, and R&D tax credits. The Company has estimated its fiscal year 2024 GILTI (global intangible low-taxed income), BEAT (base-erosion anti-abuse tax), FDII (foreign-derived intangible income), limitations on interest expense deductions, and other components of U.S. tax reform, and have included these amounts in the calculation of the fiscal year 2024 tax provision. The Company has made an accounting policy election, as allowed by the SEC and FASB, to recognize the impact of GILTI as a period cost if and when incurred. Significant components of deferred tax assets and liabilities are as follows:
(In millions) | September 27, 2024 |  | September 29, 2023
Deferred tax assets: |  |  |
Inventory adjustments | $ | 4.7 |  |  | $ | 5.9 |
Share-based compensation | 6.3 |  |  | 6.7 |
Product warranty | 2.0 |  |  | 1.5 |
Unrealized exchange gain | 3.0 |  |  | 2.5 |
Deferred compensation | 1.7 |  |  | 1.4 |
Net operating loss carryforwards | 18.9 |  |  | 19.4 |
Accrued vacation | 0.6 |  |  | 0.3 |
Accrued incentives | 0.3 |  |  | 2.0 |
Credit carryforwards | 3.6 |  |  | 2.7 |
Deferred financing fees | 2.5 |  |  | 5.7 |
Capitalized interest | 1.1 |  |  | 1.1 |
Lease liabilities | 7.5 |  |  | 6.1 |
Investments in privately held companies | 4.0 |  |  | 3.2 |
Research and experimentation capitalization | 30.8 |  |  | 17.6 |
Royalty advance | 6.6 |  |  | — |
Other DTA | 3.9 |  |  | 4.1 |
| $ | 97.5 |  |  | $ | 80.2 |
Valuation allowance | (74.7) |  |  | (18.7) |
Total deferred tax assets | $ | 22.8 |  |  | $ | 61.5 |
Deferred tax liabilities: |  |  |
Acquired intangibles | $ | (3.9) |  |  | $ | (5.3) |
Property, plant and equipment | (7.1) |  |  | (8.0) |
Operating lease assets | (7.3) |  |  | (6.0) |
Other DTL | (1.2) |  |  | (0.9) |
Total deferred tax liabilities | (19.5) |  |  | (20.2) |
Net deferred tax assets | $ | 3.3 |  |  | $ | 41.3 |
Reported As: |  |  |
Deferred tax assets | $ | 22.8 |  |  | $ | 61.5 |
Deferred tax liabilities | (19.5) |  |  | (20.2) |
Net deferred tax assets | $ | 3.3 |  |  | $ | 41.3 |
The Company is maintaining its reinvestment assertion with respect to foreign earnings for the year ended September 27, 2024, which is that all earnings prior to fiscal year 2018 are permanently reinvested for all countries, and that all earnings for Varex Imaging Sweden and Oy Varex Imaging Finland, are also indefinitely reinvested in those countries, but post fiscal year 2017 earnings in all other countries are not permanently reinvested. Due to the level of earnings available for repatriation, the treaty benefits applicable to jurisdictions in which those earnings are located, and the now favorable U.S. tax treatment of repatriated foreign earnings, the amount of deferred tax liability recorded related to the potential repatriation is approximately $0.1 million. This estimated liability is for U.S. state income taxes and foreign withholding taxes that would apply if the foreign earnings were repatriated in the form of a dividend. As of September 27, 2024, the Company had foreign net operating loss carryforwards ("NOL") of approximately $18.9 million carried forward indefinitely. A valuation allowance is provided if it is more likely than not that some or all of the deferred tax assets will not be realized. Also, net operating loss carryforwards in jurisdictions with current losses provide uncertainty for realization. As of September 27, 2024, based on the Company’s assessment of the realizability of net deferred tax assets, it reached the conclusion that it was more likely than not that the U.S. federal deferred tax assets are not realizable. As a result, a valuation allowance was placed against all of the U.S. federal deferred tax assets. The Company continues to maintain a valuation allowance against U.S. state R&D credit carryforwards and increased its valuation allowance against state net operating losses. The Company also maintains full valuation allowances against the net deferred tax assets in Sweden, the United Kingdom, and Saudi Arabia, due to recent historical losses and the uncertainty of future taxable income to realize those net operating losses. The valuation allowance increased by $56.0 million during fiscal year 2024 and decreased by $13.5 million during fiscal year 2023. Changes in the Company's valuation allowance for deferred tax assets were as follows:
| Fiscal Years
(In millions) | 2024 |  | 2023 |  | 2022
Valuation allowance balance–beginning of fiscal year | $ | 18.7 |  |  | $ | 32.2 |  |  | $ | 30.2 |
Other increases | 56.0 |  |  | — |  |  | 6.9 |
Other decreases | — |  |  | (13.5) |  |  | (4.9) |
Valuation allowance balance—end of fiscal year | $ | 74.7 |  |  | $ | 18.7 |  |  | $ | 32.2 |
The Company accounts for uncertainty in income taxes following a two-step approach for recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining whether the weight of available evidence indicates that it is more likely than not that, based on the technical merits, the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. Changes in the Company’s unrecognized tax benefits were as follows:
| Fiscal Years
(In millions) | 2024 |  | 2023 |  |
Unrecognized tax benefits balance–beginning of fiscal year | $ | 1.4 |  |  | $ | 1.2 |  |  |
Additions based on tax positions related to the current year | 0.2 |  |  | 0.2 |  |  |
Unrecognized tax benefits balance—end of fiscal year | $ | 1.6 |  |  | $ | 1.4 |  |  |
As of September 27, 2024 and September 29, 2023, the total amount of gross unrecognized tax benefits was $1.6 million and $1.4 million, respectively, all of which would affect the effective tax rate if recognized. The Company includes interest and penalties related to income taxes within income tax expense (benefit) on the Consolidated Statements of Operations. For the year ended September 27, 2024, $0.2 million interest and penalties have been included for this period. For the year ended September 29, 2023, $0.2 million interest and penalties have been included for this period. For the year ended September 30, 2022, $0.2 million interest and penalties have been included for this period. The Company files U.S. federal and state income tax returns and non-U.S. income tax returns in various jurisdictions. All of these returns are subject to examination by their respective taxing jurisdictions from the date of filing through each applicable statute of limitation period. Other periods for entities acquired are still open and subject to examination. Generally, periods prior to 2014 are no longer subject to examination.

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