Annual report [Section 13 and 15(d), not S-K Item 405]

Income Taxes

v3.25.0.1
Income Taxes
12 Months Ended
Dec. 31, 2024
Income Tax Disclosure [Abstract]  
Income Taxes
(10)
Income Taxes

The Company’s earnings before income tax expense consists of the following:

 

 

 

Year Ended December 31,

 

(in thousands)

 

2024

 

 

2023

 

 

2022

 

U.S. operations

 

$

27,136

 

 

$

16,740

 

 

$

(48,311

)

Foreign operations

 

 

850,613

 

 

 

784,132

 

 

 

570,568

 

Earnings before income taxes

 

$

877,749

 

 

$

800,872

 

 

$

522,257

 

 

Income tax consists of the following:

 

 

 

Year Ended December 31,

 

(in thousands)

 

2024

 

 

2023

 

 

2022

 

Current

 

 

 

 

 

 

 

 

 

Federal

 

$

17,868

 

 

$

16,839

 

 

$

256

 

State

 

 

10,062

 

 

 

7,986

 

 

 

9,564

 

Foreign

 

 

115,125

 

 

 

130,655

 

 

 

84,904

 

Total current

 

 

143,055

 

 

 

155,480

 

 

 

94,724

 

Deferred

 

 

 

 

 

 

 

 

 

Federal

 

 

(8,601

)

 

 

(2,079

)

 

 

7,043

 

State

 

 

89

 

 

 

(4,598

)

 

 

(1,287

)

Foreign

 

 

13,593

 

 

 

2,146

 

 

 

(7,385

)

Total deferred

 

 

5,081

 

 

 

(4,531

)

 

 

(1,629

)

Income tax expense

 

$

148,136

 

 

$

150,949

 

 

$

93,095

 

 

Income taxes differ from the statutory tax rates as applied to earnings before income taxes as follows:

 

 

 

Year Ended December 31,

 

(in thousands)

 

2024

 

 

2023

 

 

2022

 

Expected income tax expense

 

$

184,327

 

 

$

168,183

 

 

$

109,674

 

State income tax, net of federal benefit

 

 

2,334

 

 

 

(832

)

 

 

(1,597

)

Rate differential on foreign income

 

 

(48,495

)

 

 

(27,931

)

 

 

(49,175

)

Change in unrecognized tax benefits

 

 

4,075

 

 

 

3,841

 

 

 

12,310

 

Intra-entity intellectual property transfer

 

 

 

 

 

 

 

 

(3,232

)

Non-deductible compensation

 

 

12,235

 

 

 

14,397

 

 

 

13,668

 

Tax credits

 

 

(6,489

)

 

 

(6,813

)

 

 

(7,544

)

Excess tax (benefit) expense on stock compensation

 

 

(4,701

)

 

 

(854

)

 

 

1,305

 

U.S. tax on foreign earnings

 

 

8,986

 

 

 

8,180

 

 

 

7,611

 

Other

 

 

(3,978

)

 

 

(5,235

)

 

 

217

 

Change in valuation allowance

 

 

(158

)

 

 

(1,987

)

 

 

9,858

 

Income tax expense

 

$

148,136

 

 

$

150,949

 

 

$

93,095

 

Effective tax rate

 

 

16.9

%

 

 

18.8

%

 

 

17.8

%

The Company’s income tax expense and effective income tax rate are significantly impacted by the mix of the Company’s domestic and foreign earnings (loss) before income taxes. In the non-U.S. jurisdictions in which the Company has operations, the applicable statutory rates are generally lower than in the U.S., ranging from 0% to 35%. The Company’s income tax expense was calculated using the applicable rate for each jurisdiction applied to the Company’s pre-tax earnings (loss) while the Company’s effective tax rate is calculated by dividing income tax expense by earnings before income taxes. For 2024, the effective tax rate was lower than the U.S. federal and state combined statutory rate of approximately 24.9%, primarily due to tax benefits related to earnings from foreign operations in jurisdictions imposing either lower tax rates on corporate earnings or no corporate income tax.

The Company is subject to a tax on global intangible low-taxed income (“GILTI”). GILTI taxes foreign income in excess of a deemed return on tangible assets of foreign corporations and is treated as a period cost.

The tax effects of temporary differences giving rise to deferred tax assets and liabilities are presented below:

 

 

 

As of December 31,

 

(in thousands)

 

2024

 

 

2023

 

Deferred tax assets

 

 

 

 

 

 

Inventory adjustments

 

$

13,047

 

 

$

9,413

 

Accrued expenses

 

 

128,396

 

 

 

109,510

 

Allowances for credit losses and chargebacks

 

 

8,635

 

 

 

5,648

 

Intra-entity IP transfer

 

 

314,626

 

 

 

330,545

 

Section 174 Capitalized Costs

 

 

40,320

 

 

 

43,130

 

Loss carryforwards

 

 

36,007

 

 

 

46,021

 

Business credit carryforward

 

 

19,309

 

 

 

22,571

 

Share-based compensation

 

 

14,264

 

 

 

10,486

 

Operating lease liabilities

 

 

363,052

 

 

 

338,389

 

Total deferred tax assets

 

 

937,656

 

 

 

915,713

 

Valuation allowance

 

 

(56,176

)

 

 

(56,334

)

Total deferred tax assets, net

 

 

881,480

 

 

 

859,379

 

Deferred tax liabilities

 

 

 

 

 

 

Prepaid expenses

 

 

2,448

 

 

 

3,873

 

Right-of-use assets

 

 

363,052

 

 

 

338,389

 

Foreign intangibles

 

 

23,068

 

 

 

16,116

 

Depreciation on property, plant and equipment

 

 

63,702

 

 

 

63,021

 

Total deferred tax liabilities

 

 

452,270

 

 

 

421,399

 

Net deferred tax assets

 

$

429,210

 

 

$

437,980

 

At December 31, 2024, combined foreign net operating loss carry-forwards were approximately $122.2 million of which $2.2 million expire in 2025 and $37.0 million can be carried forward indefinitely.

U.S. federal tax credit carry-forward at December 31, 2024 was $3.4 million. State tax credit and net operating loss carry-forwards at December 31, 2024 were $28.6 million and $52.7 million. The state tax credit carries forward indefinitely and the net operating loss carry-forward amounts begin to expire in 2033. No valuation allowance has been recorded on these amounts as the Company believes they will be fully utilized.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

 

 

 

As of December 31,

 

(in thousands)

 

2024

 

 

2023

 

Beginning balance

 

$

43,216

 

 

$

41,247

 

Additions for current year tax positions

 

 

6,168

 

 

 

4,530

 

Additions for prior year tax positions

 

 

 

 

 

1,379

 

Reductions for prior year tax positions

 

 

(7,040

)

 

 

 

Settlement of uncertain tax positions

 

 

 

 

 

(1,722

)

Reductions related to lapse of statute of limitations

 

 

(1,936

)

 

 

(2,218

)

Ending balance

 

$

40,408

 

 

$

43,216

 

 

Current unrecognized tax benefits are recorded as a reduction in prepaid expense and included in tax expense when recorded. Long-term unrecognized tax benefits are recorded as an increase in long-term taxes payable with a portion included in tax expense and a portion recorded as a reduction in deferred tax liabilities when recorded. If recognized, $42.5 million of unrecognized tax benefits would be recorded as a reduction in income tax expense and $2.1 million would be recorded as a net increase in deferred tax asset.

The amount of income taxes the Company pays is subject to ongoing audits by taxing jurisdictions around the world. The Company’s estimate of the potential outcome of any uncertain tax position is subject to its assessment of relevant risks, facts, and circumstances existing at that time. The Company believes that it has adequately provided for these matters. However, the Company’s future results may include favorable or unfavorable adjustments to its estimates in the period the audits are resolved, which may impact the Company’s effective tax rate.

As of December 31, 2024, the Company's U.S. federal tax returns are under examination for fiscal years ended December 31, 2015, 2018, 2019, 2020, 2021 and 2022 by the Internal Revenue Service. Additionally, the Company is currently under examination in certain foreign jurisdictions. The Company is unable to determine the impact as these examinations have not been completed. As of December 31, 2024, the Company’s tax filings are generally subject to examination in most foreign jurisdictions for years ended on or after December 31, 2019. It is reasonably possible that certain foreign statutes will expire during the next twelve months which would reduce the balance of unrecognized tax benefits by $0.8 million.

The Company estimates interest and penalties related to income tax matters which are included in income tax expense (benefit). Amounts were $(0.7) million, $2.3 million, and $(1.9) million for the years ended December 31, 2024, 2023 and 2022. Accrued interest and penalties were $5.8 million and $6.4 million as of December 31, 2024 and 2023.

The Company’s cash and cash equivalents held in the U.S. and cash provided from operations are sufficient to meet the Company’s liquidity needs in the U.S. for the next twelve months. However, the Company may repatriate certain funds held outside the U.S. for which all applicable U.S. and non-U.S. tax has been fully provided as of December 31, 2024. The Company has provided for the tax impact of expected distributions from its joint venture in China as well as from its subsidiary in Chile to its intermediate parent company in Switzerland. Otherwise, because of the need for cash for operating capital and continued overseas expansion, the Company does not foresee the need for any of its other foreign subsidiaries to distribute funds up to an intermediate foreign parent company in any form of taxable dividend. Under current applicable tax laws, if the Company chooses to repatriate some or all of the funds the Company has designated as indefinitely reinvested outside the U.S., the amount repatriated would not be subject to federal income tax but may be subject to applicable non-U.S. income and withholding taxes, and to certain state income taxes. In addition to certain tax restrictions, the joint venture in China has limitations on its distribution of earnings, as local law currently requires it to maintain $30.0 million of its earnings in a statutory reserve. On October 18, 2024, the Company repatriated $400.0 million of foreign earnings to the U.S.