Income Taxes

12 Months Ended

Dec. 31, 2024

Income Taxes

Income Taxes

Note 6—Income Taxes

The components of income before income taxes and the provision for income taxes are as follows:

	Year Ended December 31,
	2024		2023		2022
Income before income taxes:
United States	$	462.0	$	521.9	$	442.3
Foreign		2,549.9		1,932.9		2,025.1
	$	3,011.9	$	2,454.8	$	2,467.4
Current tax provision (benefit):
United States	$	19.0	$	55.1	$	97.7
Foreign		634.1		513.0		457.6
		653.1		568.1		555.3
Deferred tax provision (benefit):
United States		(56.2)		(10.0)		(31.5)
Foreign		(26.6)		(48.8)		26.8
		(82.8)		(58.8)		(4.7)
Total provision for income taxes	$	570.3	$	509.3	$	550.6

The United States federal government enacted the Tax Cuts and Jobs Act (“Tax Act”) in December 2017. As a result, in 2017, the Company recorded a transition tax (“Transition Tax”) related to the deemed repatriation of the accumulated unremitted earnings and profits of the Company’s foreign subsidiaries. In the second quarter of 2024, the Company paid its seventh annual installment of the Transition Tax, net of applicable tax credits and deductions, and will pay the balance of the Transition Tax, net of applicable tax credits and deductions, in 2025, as permitted under the Tax Act. The current and long-term portions of the Transition Tax are recorded in Accrued income taxes and Other long-term liabilities, respectively, on the Consolidated Balance Sheets as of December 31, 2024 and 2023. In addition, as a result of the Tax Act, the Company also recorded a tax charge, in 2017, related to changes in the Company’s permanent reinvestment assertion, due to our intention to repatriate prior accumulated unremitted earnings from certain foreign subsidiaries over time. We will pay such taxes when those respective earnings are repatriated.

At December 31, 2024, the Company had $246.8 of foreign tax loss carryforwards, $151.9 of U.S. state tax loss carryforwards and $35.7 of U.S. federal tax loss carryforwards, of which $40.2, $151.9 and $1.6, respectively, will expire at various dates through 2044 and the balance can be carried forward indefinitely.  At December 31, 2024, the Company had $19.5 of U.S. state tax credit carryforwards and $16.4 of U.S. federal tax credit carryforwards, of which $12.1 and $16.4, respectively, will expire at various dates through 2044 and the balance can be carried forward indefinitely.

A valuation allowance of $73.6 and $46.6 at December 31, 2024 and 2023, respectively, has been recorded which relates primarily to the U.S. state and foreign net operating loss carryforwards and U.S. federal and state tax credit carryforwards. The valuation allowance for deferred tax assets increased by $27.0 in 2024, which was primarily driven by U.S. state and foreign net operating loss carryforwards and U.S. federal tax credit carryforwards. The valuation allowance for deferred tax assets increased by $4.4 in 2023, which was primarily driven by U.S. state and foreign net operating loss carryforwards.

Differences between the U.S. statutory federal tax rate and the Company’s effective income tax rate are analyzed below:

	Year Ended December 31,
	2024		2023		2022
U.S. statutory federal tax rate	21.0	%	21.0	%	21.0	%
State and local taxes, net	0.6		0.6		0.6
Foreign earnings and dividends taxed at different rates	1.9		2.2		2.3
U.S. tax on foreign income	(0.1)		—		0.5
Excess tax benefits related to stock-based compensation	(4.7)		(3.4)		(2.3)
Other, net	0.2		0.3		0.2
Effective tax rate	18.9	%	20.7	%	22.3	%

For the years ended December 31, 2024, 2023 and 2022, stock option exercise activity had the impact of decreasing our Provision for income taxes by $142.6, $82.4 and $56.0, respectively, and decreasing our effective tax rate by the basis points in the table above. Total acquisition-related expenses, as discussed in further detail in Note 11 herein, had the aggregate impact of increasing our effective tax rate by approximately 30 basis points, 20 basis points and 10 basis points for the years ended December 31, 2024, 2023 and 2022, respectively. For the year ended December 31, 2024, a discrete tax benefit of $18.6, related to the settlement of tax audits and associated lapses of statutes of limitation, along with a difference in a non-U.S. tax filing position, had the effect of decreasing our effective tax rate by approximately 60 basis points, and, for the year ended December 31, 2023, the gain associated with the bargain purchase acquisition that closed in the second quarter of 2023, as discussed in Note 11 herein, had the effect of decreasing our effective tax rate by approximately 10 basis points.

The components of the Company’s deferred tax assets and liabilities are comprised of the following:

	December 31,
	2024		2023
Deferred tax assets relating to:
Accrued liabilities and reserves	$	115.7	$	78.0
Operating lease liabilities		86.2		70.7
Operating loss, interest, and tax credit carryforwards		114.8		76.9
Pensions		10.2		16.7
Inventories		112.0		86.0
Employee benefits		49.5		45.1
Total deferred tax assets		488.4		373.4
Valuation allowance		(73.6)		(46.6)
Total deferred tax assets, net of valuation allowances		414.8		326.8
Deferred tax liabilities relating to:
Goodwill		307.2		270.5
Depreciation and amortization		144.1		130.9
Operating lease right-of-use assets		86.2		70.7
Unremitted foreign earnings		125.3		123.2
Total deferred tax liabilities		662.8		595.3
Net deferred tax liability	$	248.0	$	268.5
Classification of deferred tax assets and liabilities, as reflected on the Consolidated Balance Sheets:
Other long-term assets	$	128.7	$	98.5
Deferred income taxes		376.7		367.0
Net deferred tax liability, long-term	$	248.0	$	268.5

A tabular reconciliation of the gross amounts of unrecognized tax benefits excluding interest and penalties at the beginning and end of the year for 2024, 2023 and 2022 is shown below.

	2024		2023		2022
Unrecognized tax benefits as of January 1	$	174.2	$	164.1	$	147.7
Gross increases for tax positions in prior periods		15.2		3.8		12.8
Gross increases for tax positions in current period		21.1		8.4		4.9
Settlements		(6.1)		(1.0)		(0.4)
Lapse of statutes of limitations		(27.6)		(1.1)		(0.9)
Unrecognized tax benefits as of December 31	$	176.8	$	174.2	$	164.1

The Company includes estimated interest and penalties related to unrecognized tax benefits in the provision for income taxes. During the years ended December 31, 2024, 2023 and 2022, the provision for income taxes included a net (benefit) expense of ($4.2), $5.8 and $0.8, respectively, in estimated interest and penalties. As of December 31, 2024, 2023 and 2022, the liability for unrecognized tax benefits included $37.7, $41.8 and $35.8, respectively, for tax-related interest and penalties.

The Company operates in the U.S. and numerous foreign taxable jurisdictions, and at any point in time has numerous audits underway at various stages of completion. With few exceptions, the Company is subject to income tax examinations by tax authorities for the years 2017 and after. The Company is generally not able to precisely estimate the ultimate settlement amounts or timing until the close of an audit. The Company evaluates its tax positions and establishes liabilities for uncertain tax positions that may be challenged by tax authorities and may not be fully sustained, despite the Company’s belief that the underlying tax positions are fully supportable. As of December 31, 2024 and 2023, the amount of unrecognized tax benefits, including penalties and interest, which if recognized would impact the effective tax rate, was approximately $209.7 and $208.6, respectively. Unrecognized tax benefits are reviewed on an ongoing basis and are adjusted for changing facts and circumstances, including the progress of tax audits and the closing of statutes of limitations. Based on information currently available, management anticipates that over the next 12-month period, audit activity could be completed and statutes of limitations may close relating to existing unrecognized tax benefits of approximately $13.0.

Inflation Reduction Act of 2022

The Inflation Reduction Act of 2022 (the “IRA”), a tax and spending package that introduced several tax-related provisions, including a 15% corporate alternative minimum tax (“CAMT”) on certain large corporations and a 1% excise tax on certain corporate stock repurchases, was enacted into law in 2022. Companies were required to reassess their valuation allowances for certain affected deferred tax assets in the period of enactment but did not need to remeasure deferred tax balances for the related tax accounting implications of the CAMT. The IRA provisions, which became effective for Amphenol beginning on January 1, 2023, did not have a material impact on the Company during the years ended December 31, 2024 and 2023. While the full impact of these provisions in the future depends on several factors, including interpretive regulatory guidance, which has not yet been released, the Company does not currently believe that the provisions of the IRA, including several other non-tax related provisions, will have a material impact on its financial condition, results of operations, liquidity and cash flows.