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Income Taxes
 12 Months Ended
Dec. 31, 2024
Income Tax Disclosure [Abstract]  
Income Taxes

14. Income Taxes

The domestic and foreign components of income (loss) before income taxes for the years ended December 31 (in millions):

 

 

2024

 

 

2023

 

 

2022

 

Domestic

 

$

(250.2

)

 

$

0.7

 

 

$

(13.3

)

Foreign

 

 

457.1

 

 

 

543.5

 

 

 

427.2

 

Total income before provision for income taxes

 

$

206.9

 

 

$

544.2

 

 

$

413.9

 

The components of the income tax provision for the years ended December 31 (in millions):

 

 

2024

 

 

2023

 

 

2022

 

Current income tax expense (benefit):

 

 

 

 

 

 

 

 

 

Federal

 

$

7.3

 

 

$

2.3

 

 

$

(10.4

)

State

 

 

3.7

 

 

 

2.4

 

 

 

2.5

 

Foreign

 

 

144.2

 

 

 

138.7

 

 

 

135.3

 

Total current income tax expense

 

 

155.2

 

 

 

143.4

 

 

 

127.4

 

Deferred income tax (benefit) expense :

 

 

 

 

 

 

 

 

 

Federal

 

 

(45.2

)

 

 

(18.1

)

 

 

(3.1

)

State

 

 

(4.3

)

 

 

(4.8

)

 

 

(1.7

)

Foreign

 

 

(14.3

)

 

 

(2.8

)

 

 

(6.2

)

Total deferred income tax benefit

 

 

(63.8

)

 

 

(25.7

)

 

 

(11.0

)

Income tax provision

 

$

91.4

 

 

$

117.7

 

 

$

116.4

 

 

The income tax provision differs from the tax provision computed at the U.S. federal statutory rate due to the following significant components:

 

 

2024

 

 

2023

 

 

2022

 

Statutory tax rate

 

 

21.0

%

 

 

21.0

%

 

 

21.0

%

Foreign tax rate differential

 

 

6.6

%

 

 

3.5

%

 

 

5.2

%

Permanent differences

 

 

3.3

%

 

 

2.1

%

 

 

1.1

%

Contingent liability

 

 

4.8

%

 

 

—

 

 

 

—

 

U.S. tax on foreign earnings

 

 

5.4

%

 

 

1.0

%

 

 

(0.1

)%

Stock compensation

 

 

(0.6

)%

 

 

(0.3

)%

 

 

(0.6

)%

Tax contingencies

 

 

2.2

%

 

 

—

 

 

 

3.3

%

Change in tax rates

 

 

(1.0

)%

 

 

0.1

%

 

 

0.1

%

Repatriation of foreign earnings

 

 

1.7

%

 

 

1.0

%

 

 

0.2

%

State income taxes, net of federal benefits

 

 

(1.0

)%

 

 

(0.6

)%

 

 

0.2

%

Research and development credits

 

 

(8.6

)%

 

 

(2.0

)%

 

 

(2.1

)%

Tax impact on bargain purchase gain

 

 

0.8

%

 

 

(5.6

)%

 

 

—

 

Return to provision adjustments

 

 

3.1

%

 

 

0.3

%

 

 

(0.5

)%

Withholding taxes and other taxes

 

 

3.2

%

 

 

—

 

 

 

0.3

%

Other

 

 

1.1

%

 

 

(0.2

)%

 

 

0.1

%

Change in valuation allowance

 

 

2.2

%

 

 

1.3

%

 

 

(0.1

)%

Effective tax rate

 

 

44.2

%

 

 

21.6

%

 

 

28.1

%

The tax effect of temporary items that give rise to significant portions of the deferred tax assets and liabilities are as follows (in millions):

 

 

2024

 

 

2023

 

Deferred tax assets:

 

 

 

 

 

 

Accrued expenses

 

$

9.8

 

 

$

5.8

 

Compensation

 

 

32.7

 

 

 

20.5

 

Section 174 capitalization

 

 

68.2

 

 

 

50.5

 

Disallowed interest carryforwards

 

 

56.7

 

 

 

20.7

 

Net operating loss carryforwards

 

 

200.8

 

 

 

180.5

 

Foreign tax and other tax credit carryforwards

 

 

24.3

 

 

 

16.7

 

Unrealized currency gain/loss

 

 

24.4

 

 

 

18.6

 

Inventory

 

 

3.3

 

 

 

5.5

 

Hedge unrealized FX gain/loss

 

 

1.5

 

 

 

22.5

 

Lease liabilities

 

 

35.6

 

 

 

22.8

 

Other

 

 

10.4

 

 

 

7.5

 

Gross deferred tax assets

 

 

467.7

 

 

 

371.6

 

Less valuation allowance

 

 

(60.4

)

 

 

(13.8

)

Total deferred tax assets

 

 

407.3

 

 

 

357.8

 

Deferred tax liabilities:

 

 

 

 

 

 

Accounts payable

 

 

—

 

 

 

6.6

 

Deferred revenue

 

 

0.7

 

 

 

2.6

 

Fixed assets

 

 

16.4

 

 

 

17.2

 

Foreign patent reserves

 

 

0.8

 

 

 

1.8

 

Intangibles

 

 

172.1

 

 

 

64.1

 

Accrued expenses

 

 

4.5

 

 

 

3.1

 

Accrued withholding tax

 

 

9.6

 

 

 

10.2

 

Right-of-use asset

 

 

35.5

 

 

 

21.5

 

Other

 

 

—

 

 

 

1.1

 

Total deferred tax liabilities

 

 

239.6

 

 

 

128.2

 

Net deferred tax assets

 

$

167.7

 

 

$

229.6

 

The Company uses the liability method to account for income taxes. Under this method, deferred income taxes are recognized for the future tax consequences of differences between the tax and financial accounting bases of assets and liabilities at each reporting

period. Deferred income taxes are based on enacted tax laws and statutory tax rates applicable to the period in which these differences are expected to affect taxable income. A valuation allowance is established when necessary to reduce deferred tax assets to the expected realizable amounts.

The Company can only recognize a deferred tax asset to the extent this it is “more likely than not” that these assets will be realized. Judgments around realizability depend on the availability and weight of both positive and negative evidence. Changes in the valuation allowance for deferred tax assets were as follows (in millions):

Balance at December 31, 2021

 

$

7.1

 

Decreases recorded for valuation allowance release

 

 

(0.5

)

Balance at December 31, 2022

 

 

6.6

 

Increases recorded as an expense to income tax provision

 

 

7.2

 

Balance at December 31, 2023

 

 

13.8

 

Increases recorded as an expense to income tax provision

 

 

3.8

 

Increases recorded through purchase accounting

 

 

42.8

 

Balance at December 31, 2024

 

$

60.4

 

 

During 2024, the Company recorded a valuation allowance of $42.8 million through purchase accounting on cumulative losses that were not likely to be realized. The majority of the $42.8 million relates to the acquisition of the ELITechGroup.

 

As of December 31, 2024, the Company has approximately $593.5 million of U.S. federal net operating loss carryforwards, of which $33.8 million begin to expire at various dates beginning in 2033 and the remainder $559.7 million will be carried forward indefinitely. The Tax Cuts and Jobs Act (TCJA) enacted on December 22, 2017, limits a taxpayer’s ability to utilize NOL deduction in a year to 80% taxable income for federal NOL arising in tax years beginning after 2017. The Company has approximately $184.6 million of state net operating loss carryforwards available to reduce state taxable income that are expected to expire at various times beginning in 2025. The Company also has approximately $107.3 million of German Trade Tax and Corporate Income Tax net operating losses that are carried forward indefinitely. Additionally, the Company has $122.8 million of other foreign net operating losses that are expected to expire at various times in the future. The Company has U.S. federal foreign tax credit carried forwards in the amount of $3.1 million. The Company also has U.S. federal and state research and development tax credit of $7.7 million and $11.2 million respectively. Utilization of these credits and net operating losses may be subject to annual limitations due to the ownership percentage change limitations provided by the Code Section 382 and similar state provisions. In the event of a deemed change in control under Code Section 382, an annual limitation on the utilization of net operating losses and credits may result in the expiration of all or a portion of the net operating loss and credit carryforwards. Additionally, the Company has $152.4 million of gross interest expense carryforward as provided by Code Section 163(j) that can be carried forward indefinitely.

 

At December 31, 2024 the Company recorded state income and foreign withholding taxes on the cash and liquid assets portion of the unremitted earnings and profits (E&P) of foreign subsidiaries expected to be repatriated from its foreign subsidiaries to the United States, except for amounts from certain subsidiaries, which the Company has asserted to be indefinitely reinvested. Specifically, the Company asserts that a total of $4.1 billion of unremitted foreign earnings is indefinitely reinvested. This figure is comprised of $2.3 billion in unremitted earnings as well as $1.8 billion of non-cash E&P in all jurisdictions not indefinitely reinvested. If this E&P is ultimately distributed to the United States in the form of dividends the Company would likely be subject to additional withholding tax. The Company estimates the amount of unrecognized deferred withholding taxes on the undistributed E&P to be approximately $104.2 million at December 31, 2024.

 

The Company had gross unrecognized tax benefits, excluding interest, of approximately $63.7 million as of December 31, 2024, that if recognized, would reduce the Company’s effective tax rate. In the next twelve months it is reasonably possible that the

Company will reduce its unrecognized tax benefits by an immaterial amount due to the expiration of statutes of limitations. A tabular reconciliation of the Company’s gross unrecognized tax benefits is as follows (in millions):

 

Gross unrecognized tax benefits at December 31, 2021

 

$

51.4

 

Gross decreases—tax positions in prior periods

 

 

(8.2

)

Gross increases—current period tax positions

 

 

11.7

 

Gross unrecognized tax benefits at December 31, 2022

 

 

54.9

 

Gross decreases—tax positions in prior periods

 

 

(3.8

)

Gross increases—current period tax positions

 

 

7.4

 

Gross unrecognized tax benefits at December 31, 2023

 

 

58.5

 

Gross decreases—tax positions in prior periods

 

 

(1.8

)

Gross increases—current period tax positions

 

 

7.0

 

Gross unrecognized tax benefits at December 31, 2024

 

$

63.7

 

 

The Company’s policy is to include accrued interest and penalties related to unrecognized tax benefits and income tax liabilities, when applicable, in income tax expense. At December 31, 2024 and 2023, the Company had approximately $5.3 million and $5.8 million, respectively, of accrued interest and penalties related to uncertain tax positions included in other long-term liabilities in the consolidated balance sheets. The Company recorded expense of $1.1 million and $1.3 million during the years ended December 31, 2024 and 2023, respectively, for penalties and interest related to unrecognized tax benefits in the provision for income taxes.

The Company files tax returns in the United States, which includes federal, state and local jurisdictions, and many foreign jurisdictions with varying statutes of limitations. The Company considers Germany, the United States and Switzerland to be its significant tax jurisdictions. The majority of the Company’s earnings are derived in Germany and Switzerland. Accounting for the various federal and local taxing authorities, the statutory rates for 2024 were approximately 30.0% and 20.0% for Germany and Switzerland, respectively. The mix of earnings in those two jurisdictions resulted in an increase of 9.4% from the U.S. statutory rate of 21% in 2024.

The Company has been subject to tax examinations for the years 2013-2017 with Germany taxing authorities and for the years 2013-2023 in various taxing authorities.

 

In 2020, the Company was granted an income tax holiday for the manufacturing facility in Malaysia through February 28, 2024. The tax holiday ranges between 100% to 70% with the option to extend the tax holiday if certain conditions are met. During 2024, the Company has applied for an extension. The effect of the tax holiday in Malaysia increased the Company's net income by $5.1 million, $7.6 million and $2.5 million and increased the Company's net income per diluted share by $0.03, $0.05 and $0.01 for the years ended December 31, 2024, 2023 and 2022, respectively.

In connection with the Tax Cuts and Jobs Act (“TCJA”) of 2017, the Company recorded a toll charge liability of $35.4 million and the liability decreased to $20.5 million due to its amended 2017 tax return filed in 2023. Of the $20.5 million liability, approximately $26.5 million has already been paid. As a result, the Company has recorded a receivable in the amount of $6 million as of December 31, 2024.

In August 2022, the President of the United States signed into law the Inflation Reduction Act of 2022 (the “IRA”), a tax and spending package that introduced several tax provisions, including a 15% corporate alternative minimum tax (“CAMT”) on certain large corporations and a 1% excise tax on certain corporate stock repurchases. The IRA provisions, which became effective for the Company beginning on January 1, 2023, did not have a material impact on the Company during the year ended December 31, 2024.

The Organization for Economic Co-operation and Development (OECD) introduced its Pillar Two Framework Model Rules (“Pillar Two”), which provides guidance for a global minimum tax. This framework has been implemented by several jurisdictions, with effect January 1, 2024. The effect of enacted Pillar Two legislation has been included in the results disclosed and did not have a significant impact to the Company’s 2024 income tax provision. The Company continues to monitor jurisdictions that are expected to implement Pillar Two in the future and it is in the process of evaluating the potential impact of the enactment of Pillar Two by such jurisdictions on its consolidated financial statements.