Income Taxes

12 Months Ended

Dec. 31, 2023

Income Taxes

Income Taxes

8. Income Taxes

The provision for income taxes for the years ended December 31 consists of the following:

(thousands)	2023		2022		2021
Current:
Federal	$	33,832	$	139,730	$	68,555
State		16,108		29,117		18,418
International		299,031		293,195		214,184
	$	348,971	$	462,042	$	301,157
Deferred:
Federal	$	(59,342)	$	(39,658)	$	(347)
State		(11,960)		(5,613)		(388)
International		(22,678)		32,221		25,484
		(93,980)		(13,050)		24,749
	$	254,991	$	448,992	$	325,906

The principal causes of the difference between the U.S. federal statutory tax rate of 21% and effective income tax rates for the years ended December 31 are as follows:

(thousands)	2023		2022		2021
United States	$	(38,848)	$	517,642	$	339,499
International		1,203,202		1,366,508		1,096,875
Income before income taxes	$	1,164,354	$	1,884,150	$	1,436,374
Provision at statutory tax rate	$	244,514	$	395,672	$	301,638
State taxes, net of federal benefit		2,379		18,675		14,162
International effective tax rate differential		27,993		26,210		(5,402)
Change in valuation allowance		(7,755)		(6,378)		(1,723)
Other non-deductible expenses		2,993		7,441		9,058
Changes in tax accruals		1,153		5,993		9,937
Tax credits		(7,666)		980		(17,555)
U.S. tax (benefit) on foreign earnings		(10,075)		3,879		10,289
Other		1,455		(3,480)		5,502
Provision for income taxes	$	254,991	$	448,992	$	325,906

The company is subject to taxation of global intangible low-taxed income (“GILTI”) on foreign subsidiaries and a tax provision to deduct a portion of foreign-derived intangible income (“FDII”) of U.S. corporations. GILTI tax expense, accounted for as a current period cost, net of FDII benefit, resulted in a net tax expense (benefit) of $23.0 million, ($7.4) million, and ($12.3) million during 2023, 2022, and 2021, respectively.

As of December 31, 2023, a long-term tax payable of $6.9 million was recorded in the consolidated balance sheets for a one-time transition tax on the foreign subsidiaries’ accumulated unremitted earnings related to the 2017 U.S. Tax Cuts and Jobs Act.

At December 31, 2023, the company had a liability for unrecognized tax positions of $82.8 million. The timing of the resolution of these uncertain tax positions is dependent on the tax authorities’ income tax examination processes. Material changes are not expected; however, it is possible that the amount of unrecognized tax benefits with respect to uncertain tax positions could increase or decrease during 2024. Currently, the company is unable to make a reasonable estimate of when tax cash settlement would occur and how it would impact the effective tax rate.

A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31 is as follows:

(thousands)	2023		2022		2021
Balance at beginning of year	$	75,666	$	71,422	$	62,203
Additions based on tax positions taken during a prior period		7,466		6,760		2,528
Reductions based on tax positions taken during a prior period		(4,448)		(3,007)		(1,542)
Additions based on tax positions taken during the current period		5,505		3,526		9,326
Reductions based on tax positions taken during the current period		—		—		(370)
Reductions related to settlement of tax matters		—		(2,271)		(692)
Reductions related to a lapse of applicable statute of limitations		(1,381)		(764)		(31)
Balance at end of year	$	82,808	$	75,666	$	71,422

Interest costs related to unrecognized tax benefits are classified as a component of “Interest and other financing expense, net” in the company’s consolidated statements of operations. In 2023, 2022, and 2021, the company recognized $4.0 million, $4.4 million, and $1.3 million, respectively, of interest expense related to unrecognized tax benefits. At December 31, 2023 and 2022, the company had accrued a liability of $17.5 million and $13.5 million, respectively, for interest related to unrecognized tax benefits.

In many cases the company’s uncertain tax positions are related to tax years that remain subject to examination by tax authorities. The following describes the open tax years, by major tax jurisdiction, as of December 31, 2023:

United States - Federal	2016 - present
United States - States	2015 - present
Germany (a)	2015 - present
China and Hong Kong	2016 - present
Italy (a)	2013 - present
Netherlands	2018 - present
Sweden	2018 - present
Taiwan	2018 - present
United Kingdom	2019 - present

(a) Includes federal as well as local jurisdictions.

Deferred income taxes are provided for the effects of temporary differences between the tax basis of an asset or liability and its reported amount in the consolidated balance sheets. These temporary differences result in taxable or deductible amounts in future years.

Deferred tax assets and liabilities consist of the following at December 31:

(thousands)	2023		2022
Deferred tax assets:
Net operating loss carryforwards	$	17,987	$	18,409
Capital loss carryforwards		—		56,618
Inventory adjustments		68,542		46,188
Allowance for credit losses		27,637		25,779
Accrued expenses		73,251		35,940
Interest carryforward		4,170		4,014
Stock-based compensation awards		5,692		7,559
Lease liability		68,605		71,415
Research and experimentation costs (a)		59,277		33,426
Other		3,332		—
		328,493		299,348
Valuation allowance		(15,832)		(75,842)
Total deferred tax assets	$	312,661	$	223,506
Deferred tax liabilities:
Goodwill	$	(152,551)	$	(144,287)
Depreciation		(58,419)		(76,527)
Intangible assets		—		(3,042)
Lease right-of-use assets		(64,937)		(66,775)
Other comprehensive income items		(13,204)		(9,842)
Other		—		(3,002)
Total deferred tax liabilities	$	(289,111)	$	(303,475)
Total net deferred tax assets (liabilities)	$	23,550	$	(79,969)

(a) At December 31, 2023, and 2022, the company recorded deferred tax asset of $59.3 million and $33.4 million related to capitalized U.S. based research and experimental (“R&E”) costs, pursuant to the U.S. Internal Revenue Code Section 174, as amended by the 2017 U.S. Tax Cuts and Jobs Act.

At December 31, 2023, the company had international tax loss carryforwards of approximately $31.8 million, of which $5.1 million have expiration dates ranging from 2024 to 2043, and the remaining $26.7 million have no expiration date. Deferred tax assets related to these international tax loss carryforwards were $9.2 million with a corresponding valuation allowance of $2.6 million. At December 31, 2023, the company had a valuation allowance of $0.2 million related to other deferred tax assets.

As of December 31, 2023, the company had deferred tax assets of approximately $8.8 million with a corresponding valuation allowance of $6.7 million, related to U.S. state net operating loss carryforwards. Valuation allowances are needed when deferred tax assets may not be realized due to the uncertainty of the timing and the ability of the company to generate sufficient future taxable income in certain tax jurisdictions.

At December 31, 2023, the company had approximately $4.8 billion in undistributed foreign earnings which it deems to be indefinitely reinvested, and approximately $2.1 billion in undistributed foreign earnings which it deems to be not permanently reinvested.  The company recognizes that if it reverses its indefinite reinvestment assertion on $4.8 billion of foreign earnings, it may be subject to additional foreign taxes and U.S. state income taxes.

Income taxes paid, net of income taxes refunded, amounted to $538.4 million, $384.4 million, and $221.1 million in 2023, 2022, and 2021, respectively.