Income Taxes

12 Months Ended

Dec. 31, 2024

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Separation from Enovis

Prior to the Separation, our operating results were included in the Former Parent’s various consolidated United States federal and certain state income tax returns, as well as certain non-United States returns. For periods prior to the Separation, our combined financial statements reflect Income tax expense and deferred tax balances as if we had filed tax returns on a standalone basis separate from the Former Parent. The separate return method applies the accounting guidance for income taxes to the standalone financial statements as if we were a separate taxpayer and a standalone enterprise for the periods prior to the Separation. For periods prior to the Separation, our pretax operating results include any transactions with the Former Parent as if it were an unrelated party.

In connection with the Separation, we entered into agreements with the Former Parent, including a Tax Matters Agreement. The Tax Matters Agreement distinguishes between the treatment of tax matters for “joint” filings compared to “separate” and “unitary state” filings prior to the Separation. “Joint” filings are returns, such as the United States federal return, which include operations from both Former Parent legal entities and the Company. By contrast, “separate” filings are tax returns (primarily United States state returns and non-United States returns) that exclusively include either the Former Parent’s or the Company’s operations. “Unitary state” filings are state tax returns, which may include legal entities of both the Company and the Former Parent. In accordance with the Tax Matters Agreement, the Company is liable for and has indemnified the Former Parent against all income tax liabilities involving “separate” and “unitary state” filings for periods prior to the Separation, except to the extent a unitary state filing includes a legal entity of the Former Parent and the adjustment relates to that legal entity. The Company is also liable for fifty percent of all cash taxes paid as a result of any adjustment or redetermination or otherwise in connection with any tax contest relating to any joint return. Additionally, under the Separation Agreement, the Company is responsible for any tax indemnity related to the discontinued operations by the Former Parent.

Income from continuing operations before income taxes and Income tax expense consisted of the following per the table below.

	Year Ended December 31,
	2024		2023		2022
	(In thousands)
Income from continuing operations before income taxes:
Domestic operations	$	50,212	$	37,364	$	(19,234)
Foreign operations	320,193		281,728		319,485
	$	370,405	$	319,092	$	300,251
Income tax expense:
Current:
Federal	$	15,717	$	18,034	$	8,928
State	2,635		3,760		2,451
Foreign	58,761		99,036		77,728
	77,113		120,830		89,107
Deferred:
Federal	2,489		(11,897)		(7,501)
State	(126)		(1,341)		358
Foreign	(2,128)		(11,865)		(12,794)
	235		(25,103)		(19,937)
	$	77,348	$	95,727	$	69,170

The Company’s Income tax expense differs from the amount that would be computed by applying the United States federal statutory rate as follows in the table below.

	Year Ended December 31,
	2024		2023		2022
	(In thousands)
Taxes calculated at the United States federal statutory rate	$	77,785	$	67,010	$	63,053
State taxes	1,956		1,630		2,809
Effect of tax rates on international operations	1,823		1,548		(9,010)
Changes in tax reserves	(4,206)		10,753		(350)
Research and development tax credits	(980)		(714)		(542)
Effect of United States taxation on international operations	5,239		1,527		310
Permanent differences, net	(4,061)		10,077		7,209
Provision to return	(8,350)		703		(7,055)
Withholding taxes	6,634		11,172		12,133
Capital gain	—		—		(3,655)
Valuation Allowance	(761)		(12,308)		4,503
Other	2,269		4,329		(235)
Income tax expense	$	77,348	$	95,727	$	69,170

For the year ended December 31, 2024, the Company’s effective rate of 20.9% differs from the United States federal statutory rate of 21% due to favorable impacts from an agreement with a taxing authority on the treatment of subsidy income in a foreign jurisdiction, favorable changes in tax reserves primarily related to a final ruling in a tax case in a foreign jurisdiction, partially offset by withholding taxes. The Company’s effective tax rate of 30.0% for the year ended December 31, 2023 differed from the United States federal statutory rate of 21% due to changes in tax reserves, permanent differences relating to foreign subsidiaries and withholding taxes, partially offset by the favorable impact from changes in valuation allowances. The Company’s effective tax rate of 23.0% for the year ended December 31, 2022 differed from the United States federal statutory rate of 21% due to the impact of withholding taxes and permanent differences relating to foreign subsidiaries, partially offset by the favorable impact of the jurisdictional mix of income. Certain countries in which we operate have adopted Pillar Two legislation effective January 1, 2024. Pillar Two did not have a material impact on our 2024 effective tax rate.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. All deferred tax assets and liabilities have been classified as noncurrent and are included in Other assets and Other liabilities in the accompanying Consolidated Balance Sheets. The table below shows the temporary differences that gave rise to the significant components of deferred tax assets and liabilities.

	December 31,
	2024		2023
	(In thousands)
Deferred tax assets:
Post-retirement benefit obligation	$	1,229	$	1,350
Expenses currently not deductible	59,518		52,526
Net operating loss carryforward	86,716		107,395
Tax credit carryforward	5,137		4,581
Depreciation and amortization	4,286		7,404
Inventory	10,795		12,238
Capitalized R&D costs	20,556		18,178
Leases	21,490		23,987
Other	—		2,867
Valuation allowance	(65,007)		(79,355)
Deferred tax assets, net	$	144,720	$	151,171
Deferred tax liabilities:
Depreciation and amortization	$	(125,227)	$	(120,055)
Leases	(22,084)		(23,987)
Outside basis differences and other	(87,434)		(79,985)
Total deferred tax liabilities	(234,745)		(224,027)
Total deferred tax liabilities, net	$	(90,025)	$	(72,856)

Deferred tax assets and liabilities have been classified as noncurrent and are included in Other assets and Other liabilities in the accompanying Consolidated Balance Sheets on a net jurisdictional basis as broken out in the table below.

	December 31,
	2024		2023
	(In thousands)
Other assets	$	44,816	$	46,602
Other liabilities	(134,841)		(119,458)
Deferred tax liability, net	$	(90,025)	$	(72,856)

The Company evaluates the recoverability of its deferred tax assets on a jurisdictional basis by considering whether deferred tax assets will be realized on a more likely than not basis. To the extent a portion or all of the applicable deferred tax assets do not meet the more likely than not threshold, a valuation allowance is recorded. During the year ended December 31, 2024, the valuation allowance decreased from $79.4 million to $65.0 million primarily due to a net decrease in the valuation allowance and underlying deferred tax balance of $12.5 million. The decrease related to changes in the underlying deferred balances primarily relates to the reversal of the valuation allowance and the associated deferred balances in connection with a legal entity rationalization. In determining how much of the relevant deferred tax asset could be realized on a more likely than not basis, consideration was given to tax planning strategies and, when applicable, future taxable income.

The Company has United States federal net operating loss carryforwards of $5.1 million as of December 31, 2024 expiring in years 2029 through 2036. The Company’s ability to use these various carryforwards to offset any taxable income generated in future taxable periods may be limited under Section 382 and other federal tax provisions. As of December 31, 2024 the Company also has $331.1 million foreign net operating loss carryforwards primarily in the United Kingdom, Germany and the Netherlands that may be subject to local tax restriction limitations. The foreign net operating losses can be carried forward indefinitely, except in applicable jurisdictions that make up less than five percent of the available net operating losses.

During the year ended December 31, 2024, the Company has not made any material changes to its indefinite reinvestment assertion with respect to earnings reinvested in its foreign operations. The majority of our global unremitted foreign earnings have been taxed or would be exempt from United States tax upon repatriation. The Company has made no provision for United States income taxes or additional non-United States taxes on certain undistributed earnings or outside basis differences of non-United States subsidiaries in which the Company remains indefinitely reinvested. A portion of these undistributed earnings may

be subject to foreign and United States tax consequences upon remittance. The Company cannot practically estimate the amount of additional taxes that might be payable on those undistributed earnings.

The Company records a liability for certain unrecognized income tax benefits for which it is more likely than not that a tax position will not be sustained upon examination by the respective taxing authority (“uncertain tax positions”). This liability for such uncertain tax positions includes the amount of benefit included in (i) its previously filed income tax returns and (ii) its financial results expected to be included in income tax returns to be filed for periods through the date of its Consolidated and Combined Financial Statements. The Company’s total unrecognized tax benefits were $17.1 million, $30.9 million and $20.2 million as of December 31, 2024, 2023 and 2022, respectively, inclusive of $4.7 million, $12.1 million and $5.6 million, respectively, of interest and penalties. The Company records interest and penalties on uncertain tax positions as a component of Income tax expense, which was a benefit of $6.2 million, an expense of $7.9 million and a benefit of $0.7 million for the years ended December 31, 2024, 2023 and 2022, respectively.

The table below includes a reconciliation of the beginning and ending amount of gross unrecognized tax benefits (inclusive of associated interest and penalties).

	(In thousands)
Balance, January 1, 2022	$	37,681
Addition for tax positions taken in prior periods	1,971
Addition for tax positions taken in the current period	1,171
Reductions related to settlements with taxing authorities	(922)
Reductions resulting from a lapse of applicable statute of limitations	(2,801)
Other, including the impact of foreign currency translation and United States tax rate changes	(16,897)
Balance, December 31, 2022	20,203
Addition for tax positions taken in prior periods	13,514
Reductions related to settlements with taxing authorities	(4,160)
Transfer from Former Parent, impact of foreign currency translation and other	(473)
Other, including the impact of foreign currency translation and United States tax rate changes	1,787
Balance, December 31, 2023	30,871
Addition for tax positions taken in prior periods	6,436
Reductions for tax positions taken in prior periods	(7,825)
Reductions related to settlements with taxing authorities	(9,255)
Reductions resulting from a lapse of applicable statute of limitations	(51)
Other, including the impact of foreign currency translation	(3,092)
Balance, December 31, 2024	$	17,084

The Company files numerous group and separate tax returns in Unites States federal and state jurisdictions, as well as international jurisdictions. The Company is routinely examined by various United States and non-United States taxing authorities. The Company is subject to audit by the United States, various states and foreign jurisdictions. In accordance with the Tax Matters Agreement with Former Parent, the Company is the primary obligor for (i) ESAB separate company state returns for all periods; (ii) unitary state returns that include only ESAB legal entities for all periods; and (iii) ESAB separate foreign returns for all periods.

Pursuant to United States tax law, the Company filed its initial United States federal income tax return for the post-Separation period in October 2023. The Company reviews its global tax provisions on a quarterly basis. The Company accrues or adjusts contingent tax liabilities based on these reviews, the results of discussions and resolutions of matters with certain tax authorities, tax rulings and court decisions and the expiration of the statutes of limitations.

Due to the difficulty in predicting with reasonable certainty when tax audits will be fully resolved and closed, the range of reasonably possible significant increases or decreases in the liability for unrecognized tax benefits that may occur within the next 12 months is difficult to ascertain. The Company does not believe the total amount of unrecognized benefits will change by a material amount within the next 12 months due to the settlement of audits and expirations of statutes of limitations.