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INCOME TAXES
 12 Months Ended
Dec. 31, 2024
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
Income before income taxes consisted of the following:
Years Ended December 31,
Dollars in thousands202420232022
United States operations$(172,273)$(31,649)$92,642 
Foreign operations154,036 112,718 121,252 
Total$(18,237)$81,069 $213,894 
A reconciliation of the U.S. Federal statutory rate to the Company’s effective tax rate is as follows:
Years Ended December 31,
202420232022
Federal statutory rate21.0 %21.0 %21.0 %
Increase (decrease) in income taxes resulting from:
   State income taxes, net of federal tax benefit15.3 %2.9 %0.1 %
   Benefit derived from foreign operations22.4 %(17.2)%(1.6)%
Nondeductible meals and entertainment(5.0)%1.1 %0.1 %
   Intercompany profit in inventory4.2 %3.3 %0.3 %
   Research and development credit24.1 %(5.7)%(1.4)%
   Nondeductible executive compensation & stock compensation shortfall(19.7)%2.3 %(0.6)%
   Transaction and deal related costs
(4.1)%3.3 %(1.8)%
   Changes in valuation allowances(6.0)%4.9 %— %
   Return to provision10.1 %(0.8)%(0.5)%
   Other(0.4)%1.3 %— %
Effective tax rate61.9 %16.4 %15.6 %
Our effective tax rate was 61.9% and 16.4% of income before income taxes for the years ended December 31, 2024 and December 31, 2023, respectively.
In 2024, the Company’s effective tax rate was driven by federal, state, and international tax benefits generated from operating losses in certain jurisdictions, including a $4.4 million benefit from federal and state research tax credits, offset by the inclusion of Global Intangible Low-Taxed Income (“GILTI”). In 2023, the Company’s effective tax rate was primarily driven by the inclusion of GILTI, offset by a $5.8 million income tax benefit related to a four-year tax credit received by a Swiss subsidiary. The Company received an extension of the 2018 Swiss tax grant for three years, until the 2027 tax year. The net benefit of the tax credit, recorded as of December 31, 2023, was based on projections of use of the incremental tax grant. The Company’s Swiss subsidiary may offset the tax credit against cantonal and communal income and capital taxes during tax years 2024 through 2027. Any unused balance at the end of the 2027 tax period will be forfeited.
In 2022, the Company’s lower effective tax rate was driven by a $5.1 million income tax benefit related to stock compensation and a $2.4 million income tax benefit related to the filing of amended federal and state returns for prior years.
During 2024, the Company’s foreign operations generated a $0.4 million increase in income tax expense when compared to the same period in 2023, because of geographic and business mix of taxable earnings and losses, among other factors. The 2024 foreign effective tax rate is 12.3% compared to 16.4% in 2023.
Changes to income tax laws and regulations, in any of the tax jurisdictions in which the Company operates, could impact the effective tax rate. Various governments, both U.S. and non-U.S., are increasingly focused on tax reform and revenue-raising legislation. On August 16, 2022, the Inflation Act was signed into law, for which the Company did not experience a material impact on the Company’s effective tax rate. Further, legislation in foreign jurisdictions may be enacted, in continued response to the base erosion and profit-sharing (“BEPS”) project begun by the Organization for Economic Cooperation and Development (“OECD”).
The OECD released model rules related to a new 15% global minimum tax regime (“Pillar 2”). A number of the jurisdictions that the Company operates in have adopted some form of the model rules, which became effective beginning in 2024. The Pillar 2 rules are complex and provide for delays for implementing the tax during the early transition years, if certain conditions are met. The Company calculated an immaterial amount related to Pillar 2 tax liability for the year ending December 31, 2024, aided by certain transition safe-harbor results in Switzerland. Related changes in U.S. and non-U.S. jurisdictions could have an adverse effect on the Company’s effective tax rate.
The provision for income taxes consisted of the following:
Years Ended December 31,
Dollars in thousands202420232022
Current:
   Federal$(257)$10,973 $24,201 
   State1,330 2,851 3,835 
   Foreign8,365 11,389 9,893 
Total current$9,438 $25,213 $37,929 
Deferred:
   Federal(27,148)(19,060)(11,591)
   State(4,093)93 (2,316)
   Foreign10,510 7,082 9,322 
Total deferred$(20,731)$(11,885)$(4,585)
Provision for income taxes$(11,293)$13,328 $33,344 
The income tax effects of significant temporary differences that give rise to deferred tax assets and liabilities, shown before jurisdictional netting, are presented below:
December 31,
Dollars in thousands20242023
Assets:
   Doubtful accounts$3,370 $2,581 
   Inventory related items34,731 41,466 
   Tax credits17,922 18,859 
   Accrued vacation2,447 2,184 
   Accrued bonus5,279 4,259 
   Stock compensation8,343 9,117 
   Deferred revenue4,206 1,849 
   Net operating loss carryforwards27,370 28,799 
Capitalization of research and development expenses68,311 61,138 
   Unrealized foreign exchange gain8,655 13,907 
   Charitable contributions carryforward212 206 
   Leases and Other59,339 55,271 
   Total deferred tax assets240,185 239,636 
   Less valuation allowance(15,504)(12,486)
   Deferred tax assets after valuation allowance$224,681 $227,150 
Liabilities:
   Intangible and fixed assets(218,125)(168,229)
   Unrealized foreign exchange loss(11,280)(10,024)
   Leases and Other(21,186)(38,134)
   Total deferred tax liabilities$(250,591)$(216,387)
Total net deferred tax (liabilities) assets$(25,910)$10,763 
The 2017 U.S. Tax Cuts and Jobs Act (the “2017 Tax Act”) contained a provision which requires, for tax purposes, the capitalization and amortization of research and development expenses; effective for years beginning after December 31, 2021. The Company’s deferred tax assets increased by $10.4 million and $14.4 million at December 31, 2024 and December 31, 2023 respectively within the table above, related to the 2017 Tax Act.
At December 31, 2024, the Company had net operating loss carryforwards of $51.2 million for federal income tax purposes, $106.7 million for foreign income tax purposes and $46.5 million for state income tax purposes to offset future taxable income. For the federal net operating loss carryforwards, $51.2 million will expire through 2037. For foreign net operating loss carryforwards, $87.5 million will expire through 2028, while the remaining $19.1 million have an indefinite carry forward period. The state net operating loss carryforwards expire through 2042.
The valuation allowance relates to deferred tax assets for certain items that will be deductible for income tax purposes under very limited circumstances and for which the Company believes it will not satisfy the more likely than not threshold for realization of the associated tax benefit. In the event that the Company determines that it would be able to realize more or less than the recorded amount of net deferred tax assets, an adjustment to the deferred tax asset valuation allowance would be recorded in the period such a determination is made.
The valuation allowance at December 31, 2024 increased by $3.0 million, as compared to 2023, primarily driven by a $1.1 million increase related to the expiring Swiss federal tax credit. The valuation allowance for 2023 had increased by $2.8 million, as compared to 2022, primarily driven by the newly recognized Swiss tax credit.
Balance at Beginning of PeriodCharged to Costs and ExpensesOtherDeductionsBalance at End of Period
Description
Dollars in thousands
Year ended December 31, 2024
Deferred tax assets valuation allowance
17,823 5,330 (429)(367)22,357 
Year ended December 31, 2023
Deferred tax assets valuation allowance14,672 3,069 26 56 17,823 
Year ended December 31, 2022
Deferred tax assets valuation allowance15,258 (515)— (71)14,672 
As of December 31, 2024, the Company has not provided deferred income taxes on unrepatriated earnings from foreign subsidiaries as they are deemed to be indefinitely reinvested unless there is a manner under which to remit the earnings with no material tax cost. The Company will repatriate foreign earnings when there is no need for reinvestment overseas and no material tax cost to bring the earnings back to the United States. Reinvestment considerations would include future acquisitions, transactions, and capital expenditure plans.
A reconciliation of the beginning and ending amount of uncertain tax benefits is as follows:
Years Ended December 31,
Dollars in thousands202420232022
(In thousands)
Balance, beginning of year$812 $713 $676 
Gross increases:
   Current year tax positions— — 37 
   Prior years' tax positions35 372 — 
Lapse of statute(21)(273)— 
Balance, end of year$826 $812 $713 
Approximately $0.8 million of the balance at December 31, 2024 relates to uncertain tax positions that, if recognized, would affect the annual effective tax rate. The Company has no uncertain tax positions at December 31, 2024 related to tax positions for which it is reasonably possible that the amounts could be reduced during the twelve months following December 31, 2024.
The Company recognizes interest and penalties relating to uncertain tax positions in income tax expense. The Company recognized a minimal expense for the years ended December 31, 2024, 2023, and 2022. The Company had minimal interest and penalties accrued for the years ended December 31, 2024, 2023, and 2022.
The Company files Federal income tax returns, as well as multiple state, local and foreign jurisdiction tax returns. The Company is no longer subject to examinations of its U.S. consolidated Federal income tax returns by the Internal Revenue Service (“IRS”) through fiscal year 2018. All significant state and local matters have been concluded through fiscal year 2018. All significant foreign matters have been settled through fiscal 2017.