Income Taxes

12 Months Ended

Dec. 31, 2024

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE H – INCOME TAXES

Our Income (loss) before income taxes consisted of the following:

	Year Ended December 31,
(in millions)	2024		2023		2022
Domestic	$	(261)	$	(394)	$	(1,119)
Foreign	2,542		2,379		2,260
	$	2,282	$	1,985	$	1,141

The related expense (benefit) for income taxes consisted of the following:

	Year Ended December 31,
(in millions)	2024		2023		2022
Current
Federal	$	310	$	189	$	51
State	31		15		19
Foreign	184		116		381
	526		320		451
Deferred
Federal	(131)		(82)		(92)
State	(52)		(22)		(32)
Foreign	92		176		117
	(90)		73		(7)
	$	436	$	393	$	443

The reconciliation of income taxes at the federal statutory rate to the reported rate for income taxes is as follows:

	Year Ended December 31,
	2024		2023		2022
U.S. federal statutory income tax rate	21.0	%	21.0	%	21.0	%
State income taxes, net of federal benefit	0.1	%	0.7	%	0.7	%
Domestic taxes on foreign earnings	9.2	%	6.9	%	15.3	%
Effect of foreign taxes	(12.2)	%	(15.3)	%	(3.8)	%
Acquisition-related	1.5	%	2.2	%	4.4	%
Research credit	(3.1)	%	(2.9)	%	(4.5)	%
Valuation allowance	0.4	%	7.5	%	(1.3)	%
Compensation-related	(0.1)	%	0.5	%	0.6	%
Non-deductible expenses	0.6	%	0.4	%	0.4	%
Uncertain tax positions	1.3	%	(0.5)	%	7.7	%
Return to provision	0.5	%	(0.1)	%	(2.1)	%
Change in tax rates	0.1	%	(0.6)	%	(0.2)	%
Other, net	(0.2)	%	0.0	%	0.7	%
Reported tax rate	19.1	%	19.8	%	38.9	%

Significant components of our deferred tax assets and liabilities are as follows:

	As of December 31,
(in millions)	2024		2023
Deferred Tax Assets:
Inventory costs and related reserves	$	15	$	30
Tax benefit of net operating losses and credits	774		744
Reserves and accruals	320		305
Restructuring-related charges	12		14
Litigation and product liability reserves	79		88
Investment write-down	73		58
Compensation related	186		154
Federal benefit of uncertain tax positions	25		11
Intangible assets	3,059		3,394
Capitalized R&D	329		232
Operating lease liabilities	117		—
	4,990		5,029
Less: valuation allowance	(1,268)		(1,220)
	3,722		3,809
Deferred Tax Liabilities:
Property, plant and equipment	29		24
Unrealized gains and losses on derivative financial instruments	81		66
Operating right-of-use asset	111		—
Other	1		12
	222		102
Net Deferred Tax Assets	3,500		3,707
Prepaid on intercompany profit	307		315
Net Deferred Tax Assets and Prepaid on Intercompany Profit	$	3,807	$	4,022

Our deferred tax assets, deferred tax liabilities and prepaid on intercompany profit are included in the following locations within our accompanying consolidated balance sheets (in millions):

	Location on Consolidated Balance Sheets	As of December 31,
Component		2024		2023
Prepaid on intercompany profit	Prepaid income taxes	$	307	$	315
Non-current deferred tax asset	Deferred tax assets	3,655		3,841
Deferred Tax Assets and Prepaid on Intercompany Profit		3,962		4,157
Non-current deferred tax liability	Deferred tax liabilities	155		134
Deferred Tax Liabilities		155		134
Net Deferred Tax Assets and Prepaid on Intercompany Profit		$	3,807	$	4,022

As of December 31, 2024 and 2023, we had U.S. federal and state tax net operating loss carryforwards and tax credits, the tax effect of which was $558 million and $540 million, respectively. In addition, we had foreign tax net operating loss carryforwards and tax credits, the tax effect of which was $216 million as of December 31, 2024, and $203 million as of December 31, 2023. These tax attributes expire periodically beginning in 2025.

After consideration of all positive and negative evidence, we believe that it is more likely than not that a portion of our deferred tax assets will not be realized. As a result, we recorded a valuation allowance of $1.268 billion as of December 31, 2024, and $1.220 billion as of December 31, 2023. The increase in the valuation allowance as of December 31, 2024, compared to

December 31, 2023, is primarily due to maintaining valuation allowances on certain foreign deferred tax assets which increased during the year and acquisition of deferred tax assets which required a valuation allowance, offset by release of valuation allowances on certain U.S. state net operating losses. The income tax impact of the unrealized gain or loss component of other comprehensive income and stockholders' equity was a charge of $30 million in 2024, a benefit of $39 million in 2023 and a charge of $56 million in 2022.

We obtain tax incentive rates through the Free Trade Zone Regime offered in Costa Rica which allows 100 percent exemption from income tax in the first eight years of operations, which will expire in 2027, and 50 percent exemption in the following four years, which will expire in 2031. This tax incentive resulted in income tax savings of $316 million, $212 million and $162 million in 2024, 2023 and 2022, respectively, and impacted Net income (loss) per common share - diluted by $0.21, $0.15 and $0.11 for 2024, 2023 and 2022, respectively. We also benefit from tax rate incentives in Puerto Rico through a Grant of Industrial Tax Exemption which will expire in 2034, with an option to extend for an additional 15 years. This incentive resulted in income tax savings of $10 million, $16 million and $21 million in 2024, 2023 and 2022, respectively, and impacted Net income (loss) per common share - diluted by $0.01, $0.01 and $0.02 in 2024, 2023 and 2022, respectively. Additionally, we benefit from tax incentive rates in Malaysia through the Principal Hub Incentive which allows a 100 percent exemption from income tax, and the Pioneer Business Exemption which allows a full tax exemption on manufacturing of specific medical device products, both of which have an option to renew for additional five-year terms and will expire in 2028 and 2029, respectively. These incentives have resulted in income tax savings of $27 million, $20 million and $17 million in 2024, 2023 and 2022, respectively and impacted Net income (loss) per common share - diluted by $0.02, $0.01 and $0.01 in 2024, 2023 and 2022, respectively. Lastly, the Company benefits from tax rate incentives on certain taxable profits in China through a High and New Technology Enterprise Regime, which will expire in 2026 with the option to renew every three years. This incentive resulted in income tax savings of less than $1 million and $6 million in 2024 and 2023, respectively, and was not applicable during 2022. The impact on Net income (loss) per common share - diluted was de minimis for both 2024 and 2023.

As of December 31, 2024, we had $506 million of gross unrecognized tax benefits, of which a net $423 million, if recognized, would affect our effective tax rate. As of December 31, 2023, we had $467 million of gross unrecognized tax benefits, of which a net $395 million, if recognized, would affect our effective tax rate. As of December 31, 2022, we had $492 million of gross unrecognized tax benefits, of which a net $410 million, if recognized, would affect our effective tax rate. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	Year Ended December 31,
(in millions)	2024		2023		2022
Beginning Balance	$	467	$	492	$	255
Additions based on positions related to the current year	58		65		88
Additions based on positions related to prior years	20		67		177
Reductions for tax positions of prior years	(20)		(114)		(20)
Settlements with taxing authorities	—		(14)		(1)
Statute of limitation expirations	(18)		(29)		(8)
Ending Balance	$	506	$	467	$	492

We are subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. We have concluded all U.S. federal income tax matters and substantially all material state and local income tax matters through 2018. We have concluded substantially all foreign income tax matters through 2015.

In 2023, we received notification from the IRS that the examination of our 2017 and 2018 tax years was resolved. Due to the resolution of these tax years, we recorded a net tax benefit of $44 million to release the reserves related to these years. We paid tax of $16 million to the IRS reflecting the net balance of amounts due for the tax period including an increase to past transition tax installment payments for periods prior to 2023 and interest. The subsequent transition tax payment made in 2024 was increased to reflect the final audit settlement, as will the final remaining payment in 2025.

We recognize interest and penalties related to income taxes as a component of income tax expense. We had $78 million accrued for gross interest and penalties as of December 31, 2024, $70 million as of December 31, 2023, and $77 million as of December 31, 2022. Net tax expense related to interest and penalties was immaterial in 2024, 2023 and 2022.

It is reasonably possible that within the next 12 months we will resolve multiple issues with foreign, federal and state taxing authorities, resulting in a reduction in our balance of unrecognized tax benefits of up to $26 million.

The remaining balance of the one-time transition tax on post-1986 earnings and profits that was previously deferred from U.S. income taxes is $147 million as of December 31, 2024. The eighth and final payment will be paid by April 15, 2025.

As of December 31, 2024, we have not recorded a tax provision on approximately $20 billion of unremitted earnings of our international subsidiaries as these earnings are intended to be indefinitely reinvested overseas. We regularly review our plans for reinvestment or repatriation of unremitted foreign earnings and any future change in our plans would require us to provide for the net tax impacts of these amounts. Determining the amount of unrecognized deferred income tax related to our undistributed accumulated foreign earnings and additional outside basis differences is not practicable.