Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Below is a summary of the components of the Company’s income before income taxes for the years ended December 31 (in thousands).

	2021		2020		2019
U.S.	$	485,472	$	111,880	$	115,543
Non-U.S.	484,398		214,253		160,196
Income before income taxes	$	969,870	$	326,133	$	275,739

The components of the expense (benefit) for income taxes on the above income are summarized in the table below (in thousands).

	2021		2020		2019
Current tax expense:
U.S. federal	$	117,024	$	14,480	$	30,208
State and local	36,266		16,360		11,630
Foreign	64,835		62,993		53,105
Total current	218,125		93,833		94,943
Deferred tax (benefit) expense:
U.S. federal	(4,640)		(7,206)		(16,389)
State and local	3,156		(13,121)		(6,897)
Foreign	(33,389)		(22,673)		(48,186)
Total deferred	(34,873)		(43,000)		(71,472)
Total current and deferred	183,252		50,833		23,471
(Expense) benefit relating to interest rate swaps used to increase equity	(7,281)		8,257		17,666
Benefit from stock transactions with employees used to increase equity	78		56		54
Benefit relating to defined-benefit pension adjustments used to increase equity	261		242		1,258
Total tax expense	$	176,310	$	59,388	$	42,449

The components of long-term deferred tax assets (liabilities) are summarized in the table below (in thousands).

	December 31,
	2021		2020
Accrued liabilities	$	90,384	$	81,302
Operating leases	60,226		51,450
Loss and credit carryforwards	31,662		23,852
Assets relating to equity compensation	15,863		14,981
Other assets	12,195		16,290
Gross deferred tax assets	210,330		187,875
Valuation allowance	(23,331)		(15,717)
Net deferred tax assets	186,999		172,158
Property, equipment and leasehold improvements	(14,576)		(9,852)
Intangible assets	(123,523)		(172,723)
Prepaid expenses	(70,149)		(46,105)
Other liabilities	(20,536)		(13,152)
Gross deferred tax liabilities	(228,784)		(241,832)
Net deferred tax liabilities	$	(41,785)	$	(69,674)

Net deferred tax assets and net deferred tax liabilities were $140.0 million and $181.8 million as of December 31, 2021, respectively, and $103.6 million and $173.2 million as of December 31, 2020, respectively. These amounts are reported in Other assets and Other liabilities in the Consolidated Balance Sheets. Management has concluded it is more likely than not that the reversal of deferred tax liabilities and results of future operations will generate sufficient taxable income to realize the deferred tax assets, net of the valuation allowance at December 31, 2021.

The valuation allowances of $23.3 million and $15.7 million as of December 31, 2021 and 2020, respectively, primarily related to loss and credit carryovers that are not likely to be realized.

As of December 31, 2021, the Company had state and local tax net operating loss carryforwards of $12.6 million, of which $0.3 million expires within six to fifteen years and $12.3 million expires within sixteen to twenty years. The Company also had state tax credits of $6.7 million, a majority of which will expire in five to six years. As of December 31, 2021, the Company had non-U.S. net operating loss carryforwards of $5.7 million, of which $0.1 million expires over the next 20 years and $5.6 million can be carried forward indefinitely. In addition, the Company also had foreign tax credit carryforwards of $15.2 million, all of which will expire between 2028 and 2031. These amounts have been reduced for associated unrecognized tax benefits, consistent with ASU No. 2013-11, “Income Taxes—Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.”

The items comprising the differences between the U.S. federal statutory income tax rate and the Company’s effective tax rate on income before income taxes for the years ended December 31 are summarized in the table below.

	2021		2020		2019
Statutory tax rate	21.0	%	21.0	%	21.0	%
State income taxes, net of federal benefit	2.8		1.7		1.5
Effect of non-U.S. operations	(3.4)		(1.8)		2.7
Intercompany sale of intellectual property	(5.6)		(8.7)		(13.8)
Net activity in recognized tax benefits	1.3		6.4		4.7
Law changes	1.3		1.8		—
Stock-based compensation expense	(2.0)		(2.8)		(3.9)
Nondeductible meals and entertainment costs	—		0.3		1.7
Limitation on executive compensation	1.7		1.3		2.4
Global intangible low-taxed income, net of foreign tax credits	1.7		1.4		1.9
Foreign-derived intangible income	(0.3)		(0.8)		(1.0)
Other items, net	(0.3)		(1.6)		(1.8)
Effective tax rate	18.2	%	18.2	%	15.4	%

The Company completed intercompany sales of certain intellectual property in 2021, 2020 and 2019. As a result, the Company recorded net tax benefits of approximately $54.1 million, $28.3 million and $38.1 million during 2021, 2020 and 2019, respectively. These benefits represent the value of future tax deductions for amortization of the assets in the acquiring jurisdiction, net of any tax recognized in the selling jurisdiction. The Company’s intellectual property footprint continues to evolve and may result in tax rate volatility in the future.

As of December 31, 2021 and 2020, the Company had gross unrecognized tax benefits of $150.0 million and $127.1 million, respectively. The increase is primarily due to positions taken with respect to certain intercompany transactions. The gross unrecognized tax benefits at December 31, 2021 related primarily to transfer pricing on intercompany transactions, calculations of taxable earnings and profits and related foreign tax credits, the exclusion of stock-based compensation expense from the Company’s cost sharing agreement, and the ability to realize certain refund claims. It is reasonably possible that gross unrecognized tax benefits will decrease by approximately $30.0 million within the next twelve months due to the anticipated closure of audits and the expiration of certain statutes of limitation.

Included in the balance of gross unrecognized tax benefits at December 31, 2021 are potential benefits of $141.5 million that, if recognized, would reduce our effective tax rate on income from continuing operations. Also included in the balance of gross unrecognized tax benefits at December 31, 2021 are potential benefits of $8.5 million that, if recognized, would result in adjustments to other tax accounts, primarily deferred taxes.

The table below is a reconciliation of the beginning and ending amounts of gross unrecognized tax benefits, excluding interest and penalties, for the years ended December 31 (in thousands).

	2021		2020
Beginning balance	$	127,080	$	102,770
Additions based on tax positions related to the current year	29,636		20,177
Additions for tax positions of prior years	2,756		14,085
Reductions for tax positions of prior years	(4,592)		(2,301)
Reductions for expiration of statutes	(3,240)		(8,191)
Settlements	(147)		(390)
Change in foreign currency exchange rates	(1,469)		930
Ending balance	$	150,024	$	127,080

The Company accrues interest and penalties related to gross unrecognized tax benefits in its income tax provision. As of December 31, 2021 and 2020, the Company had $14.3 million and $10.2 million, respectively, of accrued interest and penalties related to gross unrecognized tax benefits. These amounts are in addition to the gross unrecognized tax benefits disclosed above. The total amount of interest and penalties recognized in the income tax provision during 2021 and 2020 was $4.2 million and $2.0 million, respectively.

The number of years with open statutes of limitation varies depending on the tax jurisdiction. The Company’s statutes are open with respect to the U.S. federal jurisdiction for 2018 and forward, India for 2004 and forward, and Ireland for 2017 and forward. For other major taxing jurisdictions, including U.S. states, the United Kingdom, Canada, Japan, and France, the Company’s statutes vary and are open as far back as 2011.

Under U.S. GAAP, no provision for income taxes that may result from the remittance of earnings held overseas is required if the Company has the ability and intent to indefinitely reinvest such funds overseas. The Company continues to assert its intention to reinvest all accumulated undistributed foreign earnings in its non-U.S. operations, except in instances where the repatriation of those earnings would result in minimal additional tax. Consequently, the Company has not recognized income tax expense that would result from the remittance of those earnings. The accumulated undistributed earnings of non-U.S. subsidiaries were approximately $120.1 million as of December 31, 2021. As a result of the U.S. Tax Cuts and Jobs Act of 2017, the income tax that would be payable if such earnings were not indefinitely invested is estimated to be minimal.