Income Taxes

12 Months Ended

Dec. 31, 2024

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The Organization for Economic Cooperation and Development (OECD) guidance under the Base Erosion and Profit Shifting (BEPS) initiative aims to minimize perceived tax abuses and modernize global tax policy, including the implementation of a global minimum effective tax rate of 15%. In December 2022, the Council of the European Union adopted OECD Pillar 2 for implementation by European Union member states by December 31, 2023. The resulting legislation in most countries where Itron has significant operations is taking effect for calendar year 2024. The OECD continues to release more guidance on these rules and framework and we are evaluating the impact to our financial position. These enactments or amendments could adversely affect our tax rate and ultimately result in a negative impact on our operating results and cash flows. Based upon preliminary calculations for calendar year 2024, the Company anticipates it will meet the safe harbors in most jurisdictions, and any remaining top-up tax should be immaterial.

The following table summarizes the provision (benefit) for U.S. federal, state, and foreign taxes on income from continuing operations:

	Year Ended December 31,
In thousands	2024		2023		2022
Current:
Federal	$	65,461	$	43,101	$	(2,692)
State and local	13,427		12,039		3,698
Foreign	3,310		8,573		25,433
Total current	82,198		63,713		26,439
Deferred:
Federal	(28,541)		(29,717)		(24,167)
State and local	(5,475)		(6,471)		(4,723)
Foreign	(3,178)		1,071		(23,832)
Total deferred	(37,194)		(35,117)		(52,722)
Change in valuation allowance	(1,597)		472		20,087
Total provision (benefit) for income taxes	$	43,407	$	29,068	$	(6,196)

The change in the valuation allowance does not include the impacts of currency translation adjustments, acquisitions, or significant intercompany transactions.

Our tax provision (benefit) as a percentage of income before tax was 15%, 23%, and 39% for 2024, 2023, and 2022. A reconciliation of income taxes at the U.S. federal statutory rate of 21% to the consolidated actual tax rate is as follows:

	Year Ended December 31,
In thousands	2024		2023		2022
Income (loss) before income taxes
Domestic	$	230,120	$	88,258	$	(19,104)
Foreign	54,411		39,128		3,361
Total income (loss) before income taxes	$	284,531	$	127,386	$	(15,743)
Expected federal income tax provision (benefit)	$	59,751	$	26,751	$	(3,306)
Divestitures	—		—		1,578
Change in valuation allowance	(1,597)		472		20,087
Stock-based compensation	(3,322)		928		1,611
Foreign earnings	(14,004)		3,921		(22,244)
Tax credits	(14,081)		(11,906)		(10,967)
Uncertain tax positions, including interest and penalties	(9,046)		(57)		(2,053)
Change in tax rates	14,151		106		385
State income tax provision (benefit), net of federal effect	4,311		2,324		(2,873)
U.S. tax provision on foreign earnings	356		404		146
Nondeductible goodwill impairment	—		—		6,375
Local foreign taxes	666		509		551
Other, net	6,222		5,616		4,514
Total provision (benefit) from income taxes	$	43,407	$	29,068	$	(6,196)

Deferred tax assets and liabilities consist of the following:

	December 31,
In thousands	2024		2023
Deferred tax assets
Loss carryforwards(1)	$	397,686	$	419,327
Tax credits(2)	24,485		23,441
Accrued expenses	28,960		37,609
Pension plan benefits expense	9,596		7,671
Warranty reserves	7,754		8,265
Depreciation and amortization	58,199		64,959
Equity compensation	12,619		9,362
Inventory valuation	1,762		4,883
Deferred revenue	14,850		12,264
Interest	30,304		8,228
Leases	5,013		7,173
Capitalized research costs	151,418		113,465
Other deferred tax assets, net	756		9,004
Total deferred tax assets	743,402		725,651
Valuation allowance	(420,655)		(445,170)
Total deferred tax assets, net of valuation allowance	322,747		280,481
Deferred tax liabilities
Depreciation and amortization	(7,282)		(23,313)
Leases	(2,977)		(6,064)
Other deferred tax liabilities, net	(2,773)		(4,590)
Total deferred tax liabilities	(13,032)		(33,967)
Net deferred tax assets	$	309,715	$	246,514

(1)For tax return purposes at December 31, 2024, we had U.S. federal loss carryforwards of $5.7 million, which begin to expire in the year 2025. At December 31, 2024, we have net operating loss carryforwards in Luxembourg of $1.3 billion, the majority of which can be carried forward indefinitely, offset by a full valuation allowance. The remaining portion of the loss carryforwards are composed primarily of losses in various other state and foreign jurisdictions. The majority of these losses can be carried forward indefinitely. At December 31, 2024, there was a valuation allowance of $420.7 million primarily associated with foreign loss carryforwards.

(2)For tax return purposes at December 31, 2024, we had: U.S. general business credits of $0.5 million, which begin to expire in 2040; U.S. foreign tax credits of $0.9 million, which begin to expire in 2034; and state tax credits of $43.2 million, which begin to expire in 2025.

Changes in the valuation allowance for deferred tax assets are summarized as follows:

	Year Ended December 31,
In thousands	2024		2023		2022
Balance at beginning of period	$	445,170	$	427,423	$	443,593
Other adjustments	(22,918)		17,275		(36,257)
Additions charged to costs and expenses	(1,597)		472		20,087
Balance at end of period, noncurrent	$	420,655	$	445,170	$	427,423

We recognize valuation allowances to reduce deferred tax assets to the extent we believe it is more likely than not that a portion of such assets will not be realized. In making such determinations, we consider all available favorable and unfavorable evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and our ability to carry back losses to prior years. We are required to make assumptions and judgments about potential outcomes that lie outside management's control. Our most sensitive and critical factors are the projection, source, and character of future taxable income. Although realization is not assured, management believes it is more likely than not that deferred tax assets, net

of valuation allowance, will be realized. The amount of deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward periods are reduced.

We do not provide U.S. deferred taxes on temporary differences related to our foreign investments that are considered permanent in duration. These temporary differences include undistributed foreign earnings of $38.2 million and $30.8 million at December 31, 2024 and 2023. Foreign taxes have been provided on these undistributed foreign earnings. As a result of recent changes in U.S. tax legislation, any repatriation of these earnings would not result in additional U.S. federal income tax.

We are subject to income tax in the United States and numerous foreign jurisdictions. Significant judgment is required in evaluating our tax positions and determining our provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. We establish reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves are established when we believe that certain positions might be challenged despite our belief that our tax return positions are fully supportable. We adjust these reserves in light of changing facts and circumstances, such as the outcome of tax audits. The provision for income taxes includes the impact of reserve positions and changes to reserves that are considered appropriate.

A reconciliation of the beginning and ending amount of unrecognized tax benefits were as follows:

In thousands	Total
Unrecognized tax benefits at January 1, 2022	$	139,529
Gross increase to positions in prior years	14,450
Gross decrease to positions in prior years	(2,786)
Gross increases to current period tax positions	4,702
Audit settlements	—
Decrease related to lapsing of statute of limitations	(23,164)
Effect of change in exchange rates	(2,587)
Unrecognized tax benefits at December 31, 2022	130,144
Gross increase to positions in prior years	1,182
Gross decrease to positions in prior years	(8,666)
Gross increases to current period tax positions	10,967
Audit settlements	(3,234)
Decrease related to lapsing of statute of limitations	(2,000)
Effect of change in exchange rates	1,674
Unrecognized tax benefits at December 31, 2023	130,067
Gross increase to positions in prior years	630
Gross decrease to positions in prior years	(4,320)
Gross increases to current period tax positions	4,868
Gross decreases to current period tax positions	(1,056)
Audit settlements	(19,727)
Decrease related to lapsing of statute of limitations	(2,752)
Effect of change in exchange rates	(1,578)
Unrecognized tax benefits at December 31, 2024	$	106,132

	December 31,
In thousands	2024		2023		2022
The amount of unrecognized tax benefits that, if recognized, would affect our effective tax rate	$	106,122	$	129,591	$	130,137

If certain unrecognized tax benefits are recognized they would create additional deferred tax assets. These assets would require a full valuation allowance in certain locations based upon present circumstances.

We classify interest expense and penalties related to unrecognized tax benefits and interest income on tax overpayments as components of income tax expense. The net interest and penalties expense recognized were as follows:

	Year Ended December 31,
In thousands	2024		2023		2022
Net interest and penalties expense (benefit)	$	(3,449)	$	1,821	$	4,665

Accrued interest and penalties recognized were as follows:

	December 31,
In thousands	2024		2023
Accrued interest	$	6,418	$	9,794
Accrued penalties	293		466

At December 31, 2024, we are under examination by certain tax authorities. We believe we have appropriately accrued for the expected outcome of all tax matters and do not currently anticipate that the ultimate resolution of these examinations will have a material adverse effect on our financial condition, future results of operations, or cash flows.

Based upon the timing and outcome of examinations, litigation, the impact of legislative, regulatory, and judicial developments, and the impact of these items on the statute of limitations, it is reasonably possible that the related unrecognized tax benefits could change from those recognized within the next twelve months. However, at this time, an estimate of the range of reasonably possible adjustments to the balance of unrecognized tax benefits cannot be made.

We file income tax returns in various jurisdictions. We are subject to income tax examination by tax authorities in our major tax jurisdictions as follows:

Tax Jurisdiction	Years Subject to Audit
U.S. federal	Subsequent to 2020
France	Subsequent to 2020
Germany	Subsequent to 2018
United Kingdom	Subsequent to 2019
Indonesia	Subsequent to 2018
Italy	Subsequent to 2018

While the above years are subject to audit based on the local jurisdiction's statute of limitations, tax attributes carrying over into the above years may also be adjusted upon audit.