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
NOTE 9 — INCOME TAXES

INCOME TAX PROVISION

Consolidated income from operations before income taxes consisted of the following:

Year Ended December 31,
(in thousands)
 2024 2023 2022
U.S. operations
 $ 83,120  $ 125,578  $ 243,695 
Foreign operations 215,067  200,614  153,715 
Income before income tax $ 298,187  $ 326,192  $ 397,410 

The components of the provision for income taxes consisted of the following:

Year Ended December 31,
(in thousands)
 2024 2023 2022
Current:
Federal $ 32,073  $ 39,939  $ 52,503 
State and local 8,394  6,879  11,191 
Non-U.S.
 40,651  33,109  25,615 
81,118  79,927  89,309 
Deferred:
Federal (11,925) (5,492) (13,248)
State and local (1,258) (1,589) (710)
Non-U.S.
 6,979  1,946  10,619 
(6,204) (5,135) (3,339)
Income tax expense $ 74,914  $ 74,792  $ 85,970 

The following is a reconciliation of the statutory federal income tax rate to the effective rate reported in the financial statements:

Year Ended December 31,
(percent of income before tax) 2024 2023 2022
Provision for federal income taxes at the statutory rate 21.0  % 21.0  % 21.0  %
State and local income taxes, net of federal benefit 1.9  1.2  1.6 
Non-U.S. income taxed at different rates
 (0.5) (1.4) (0.4)
Valuation allowance
 2.1  —  — 
Adjustment to deferred taxes —  —  0.1 
Global intangible low-taxed income
 —  0.9  0.1 
Research credits (0.7) (0.7) (0.4)
Withholding taxes 0.4  1.0  0.2 
Excess tax benefits from share-based compensation plans
 0.2  0.1  — 
Other 0.7  0.8  (0.6)
Actual provision for income taxes 25.1  % 22.9  % 21.6  %
DEFERRED INCOME TAX BALANCES

Significant components of the Company's deferred taxes consisted of the following:

As of December 31,
(in thousands)
 2024
2023
Deferred tax assets:
Accruals and allowances $ 37,436  $ 29,585 
Lease liabilities
 114,079  103,551 
Capitalized inventory costs 17,895  20,589 
Sales reserves 16,648  16,559 
Share-based compensation
 10,682  9,166 
Net operating loss carryforwards 2,550  1,720 
Depreciation and amortization 10,473  20,335 
Capitalized research and development expenditures 23,392  17,008 
Tax credits 153  860 
Other 3,153  2,471 
Gross deferred tax assets 236,461  221,844 
Valuation allowance (10,670) (7,141)
Net deferred tax assets 225,791  214,703 
Deferred tax liabilities:
Depreciation and amortization (3,149) (879)
Prepaid expenses (3,216) (3,315)
Lease ROU assets
 (100,475) (90,756)
Deferred tax liability associated with future repatriations (7,849) (11,657)
Foreign currency (7,209) (2,588)
Gross deferred tax liabilities (121,898) (109,195)
Total net deferred taxes $ 103,893  $ 105,508 


The Company records net deferred tax assets to the extent it believes these assets will more likely than not be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. The Company had foreign net operating loss carryforwards of $12.1 million as of December 31, 2024, of which $11.7 million have a 15-year carryforward period and $0.4 million have an unlimited carryforward period. As of December 31, 2024 and 2023, the net operating losses result in deferred tax assets of $2.6 million and $1.7 million, respectively, and were subject to a valuation allowance of $2.5 million and $0, respectively.

As of December 31, 2024, the Company had a foreign deferred tax asset of $10.7 million, which is subject to a valuation allowance of $8.2 million. As of December 31, 2023, the Company had a foreign deferred tax asset of $9.4 million, which was subject to a valuation allowance of $7.0 million.

As of December 31, 2024, the Company had accumulated undistributed earnings generated by the Company's foreign subsidiaries of $295.5 million. These earnings have already been subject to U.S. tax, so any further taxes associated with such earnings would generally be limited to foreign withholding and state taxes. The Company has recorded a deferred tax liability for these, except in the jurisdictions where the Company intends to indefinitely reinvest the earnings.

UNRECOGNIZED TAX BENEFITS

The Company conducts business globally and, as a result, the Company or one or more of its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Company is subject to examination by taxing authorities throughout the
world, including major jurisdictions such as Canada, China, France, Japan, South Korea, Switzerland, and the U.S.. The Company has effectively settled France tax examinations of all years through 2016, Canadian tax examinations of all years through 2018, China tax examinations of all years through 2018, U.S. tax examinations of all years through 2018, Japanese tax examinations of all years through 2019, and Swiss tax examinations of all years through 2019. The Korean National Tax Service concluded an audit of the Company's 2009 through 2013 corporate income tax returns in 2014, an audit of the Company's 2014 corporate income tax return in 2016, and an audit of 2016 through 2020 corporate income tax returns in 2022. Due to the nature of the findings in the 2009 through 2014 audits, the Company has invoked the Mutual Agreement Procedures outlined in the U.S.-Korean income tax treaty. The Company does not anticipate that adjustments relative to these findings, or any other ongoing tax audits, will result in material impacts to its financial condition, results of operations or cash flows. Other than the findings and audits previously noted, the Company is not currently under examination in any other major jurisdiction.

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

Year Ended December 31,
(in thousands)
 2024 2023 2022
Balance at beginning of year $ 10,318  $ 10,177  $ 13,855 
Increases related to prior year tax positions 264  578  234 
Decreases related to prior year tax positions (307) —  (1,646)
Increases related to current year tax positions 1,247  1,376  1,355 
Expiration of statute of limitations (1,458) (1,813) (3,621)
Balance at end of year $ 10,064  $ 10,318  $ 10,177 

Due to the potential for resolution of income tax audits currently in progress, and the expiration of various statutes of limitation, it is reasonably possible that the unrecognized tax benefits balance may change within the twelve months following December 31, 2024 by a range of zero to $1.7 million. Open tax years, including those previously mentioned, contain matters that could be subject to differing interpretations of applicable tax laws and regulations as they relate to the amount, timing, or inclusion of revenue and expenses or the sustainability of income tax credits for a given examination cycle.

Unrecognized tax benefits of $8.8 million, $9.2 million and $9.2 million would affect the effective tax rate if recognized as of December 31, 2024, 2023 and 2022, respectively.
The Company recognizes interest expense and penalties related to income tax matters in Income tax expense. The Company recognized a net increase of interest and penalties of $0.8 million and $2.7 million in 2024 and 2023, respectively, and a net decrease of interest and penalties of $0.8 million in 2022, all of which related to uncertain tax positions. The Company had $5.3 million and $4.5 million of accrued interest and penalties related to uncertain tax positions as of December 31, 2024 and 2023, respectively.