ESAB CorpESAB
ESAB Corp Income Taxes Disclosure
Income Taxes
Income from continuing operations before income taxes and Income tax expense consisted of the following per the table below. The classification of tax expense between federal, state and foreign has been recast for prior years to make all years comparable after the adoption of ASU 2023-09.
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Income from continuing operations before income taxes: | |||||||||||||||||
| Domestic operations | $ | 36,517 | $ | 50,212 | $ | 37,364 | |||||||||||
| Foreign operations | 291,743 | 320,193 | 281,728 | ||||||||||||||
| 328,260 | 370,405 | 319,092 | |||||||||||||||
| Income tax expense: | |||||||||||||||||
| Current: | |||||||||||||||||
| Federal | 7,566 | 8,983 | 12,548 | ||||||||||||||
| State | 1,929 | 2,635 | 3,760 | ||||||||||||||
| Foreign | 91,188 | 65,495 | 104,522 | ||||||||||||||
| 100,683 | 77,113 | 120,830 | |||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | (4,381) | 4,043 | (11,897) | ||||||||||||||
| State | (14) | (126) | (1,341) | ||||||||||||||
| Foreign | (27,131) | (3,682) | (11,865) | ||||||||||||||
| (31,526) | 235 | (25,103) | |||||||||||||||
| $ | 69,157 | $ | 77,348 | $ | 95,727 | ||||||||||||
The Company’s Income tax expense differs from the amount that would be computed by applying the United States federal statutory rate as follows in the table below.
| Year Ended December 31, | |||||||||||
| 2025 | |||||||||||
| (Dollars in thousands) | |||||||||||
| United States federal statutory tax | $ | 68,950 | 21.0 | % | |||||||
State and local income tax, net of federal income tax effect(1) | 1,510 | 0.5 | % | ||||||||
| Foreign tax effects: | |||||||||||
| United Kingdom: | |||||||||||
| Valuation allowance | (11,965) | (3.7) | % | ||||||||
| Other | 1,147 | 0.4 | % | ||||||||
| Switzerland: | |||||||||||
| Statutory tax rate difference between Switzerland and United States | (5,913) | (1.8) | % | ||||||||
| Other | (2,286) | (0.7) | % | ||||||||
| Peru | 5,248 | 1.6 | % | ||||||||
| Other foreign jurisdictions | 19,651 | 6.0 | % | ||||||||
| Effect of changes in tax laws or rates enacted in the current period | — | — | % | ||||||||
| Effect of cross-border tax laws: | |||||||||||
| Global Intangible Low-Taxed Income inclusion | 24,828 | 7.6 | % | ||||||||
| Subpart F income inclusion | 9,663 | 2.9 | % | ||||||||
| Foreign-Derived Intangible Income deduction | (5,563) | (1.7) | % | ||||||||
| Foreign tax credit | (33,516) | (10.2) | % | ||||||||
| Other | (93) | — | % | ||||||||
| Tax credits | (916) | (0.3) | % | ||||||||
| Changes in valuation allowances | (1,555) | (0.5) | % | ||||||||
| Nontaxable or nondeductible items: | |||||||||||
| Nondeductible officer compensation | 4,762 | 1.5 | % | ||||||||
| Other | (1,250) | (0.4) | % | ||||||||
| Changes in unrecognized tax benefits | (2,897) | (0.9) | % | ||||||||
| Other adjustments | (646) | (0.2) | % | ||||||||
| $ | 69,157 | 21.1 | % | ||||||||
(1) State taxes in California, Illinois, Kentucky, Louisiana, Minnesota, New York and Pennsylvania made up the majority (greater than 50 percent) of the tax effect in this category.
The following table presents the required disclosures prior to our adoption of ASU 2023-09 and reconciles the taxes calculated at the United States federal statutory tax rate to the total income tax expense for the years ended December 31, 2024 and 2023.
| Year Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (In thousands) | |||||||||||
| Taxes calculated at the United States federal statutory rate | $ | 77,785 | $ | 67,010 | |||||||
| State taxes | 1,956 | 1,630 | |||||||||
| Effect of tax rates on international operations | 1,823 | 1,548 | |||||||||
| Changes in tax reserves | (4,206) | 10,753 | |||||||||
| Research and development tax credits | (980) | (714) | |||||||||
| Effect of United States taxation on international operations | 5,239 | 1,527 | |||||||||
Permanent differences, net | (4,061) | 10,077 | |||||||||
| Provision to return | (8,350) | 703 | |||||||||
| Withholding taxes | 6,634 | 11,172 | |||||||||
| Valuation Allowance | (761) | (12,308) | |||||||||
| Other | 2,269 | 4,329 | |||||||||
| Income tax expense | $ | 77,348 | $ | 95,727 | |||||||
For the year ended December 31, 2025, the Company’s effective rate of 21.1% differs from the United States federal statutory rate of 21.0% due to the jurisdictional mix of earnings, including foreign withholding tax, partially offset by the release of a valuation allowance. For the year ended December 31, 2024, the Company’s effective tax rate of 20.9% differed from the United States federal statutory rate of 21.0% due to favorable impacts from an agreement with a taxing authority on the treatment of subsidy income in a foreign jurisdiction, favorable changes in tax reserves primarily related to a final ruling in a tax case in a foreign jurisdiction partially offset by withholding taxes. For the year ended December 31, 2023, the Company’s effective tax rate of 30.0% differed from the United States federal statutory rate of 21.0% due to changes in tax reserves, permanent differences relating to foreign subsidiaries and withholding taxes partially offset by the favorable impact from changes in valuation allowances.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. All deferred tax assets and liabilities have been classified as noncurrent and are included in Other assets and Other liabilities in the accompanying Consolidated Balance Sheets. The table below shows the temporary differences that gave rise to the significant components of deferred tax assets and liabilities.
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| (In thousands) | |||||||||||
| Deferred tax assets: | |||||||||||
| Post-retirement benefit obligation | $ | 1,894 | $ | 1,229 | |||||||
| Expenses currently not deductible | 73,063 | 59,518 | |||||||||
| Net operating loss carryforward | 90,458 | 86,716 | |||||||||
| Tax credit carryforward | 8,323 | 5,137 | |||||||||
| Depreciation and amortization | 6,544 | 4,286 | |||||||||
| Inventory | 12,892 | 10,795 | |||||||||
| Capitalized R&D costs | 22,035 | 20,556 | |||||||||
| Leases | 27,831 | 21,490 | |||||||||
| Net investment hedge | 10,859 | — | |||||||||
| Valuation allowance | (54,883) | (65,007) | |||||||||
| Deferred tax assets, net | 199,016 | 144,720 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Depreciation and amortization | (183,201) | (125,227) | |||||||||
| Leases | (28,418) | (22,084) | |||||||||
| Outside basis differences and other | (87,959) | (87,434) | |||||||||
| Total deferred tax liabilities | (299,578) | (234,745) | |||||||||
| Total deferred tax liabilities, net | $ | (100,562) | $ | (90,025) | |||||||
Deferred tax assets and liabilities have been classified as noncurrent and are included in Other assets and Other liabilities in the accompanying Consolidated Balance Sheets on a net jurisdictional basis as broken out in the table below.
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| (In thousands) | |||||||||||
| Other assets | $ | 58,217 | $ | 44,816 | |||||||
| Other liabilities | (158,779) | (134,841) | |||||||||
| Deferred tax liability, net | $ | (100,562) | $ | (90,025) | |||||||
The Company evaluates the recoverability of its deferred tax assets on a jurisdictional basis by considering whether deferred tax assets will be realized on a more likely than not basis. To the extent a portion or all of the applicable deferred tax assets do not meet the more likely than not threshold, a valuation allowance is recorded. During the year ended December 31, 2025, the valuation allowance decreased from $65.0 million to $54.9 million primarily due to the release of a valuation allowance in a foreign jurisdiction for which the benefit of the deferred tax asset is now considered more likely than not to be realized. In determining how much of the relevant deferred tax asset could be realized on a more likely than not basis, consideration was given to tax planning strategies and, when applicable, future taxable income.
The Company has United States federal net operating loss carryforwards of $2.2 million as of December 31, 2025 expiring in years 2029 through 2036. The Company’s ability to use these various carryforwards to offset any taxable income generated in future taxable periods may be limited under Section 382 and other federal tax provisions. As of December 31, 2025 the Company also has $357.0 million foreign net operating loss carryforwards primarily in the United Kingdom, Germany and the Netherlands that may be subject to local tax restriction limitations. The foreign net operating losses can be carried forward indefinitely, except in applicable jurisdictions that make up less than five percent of the available net operating losses.
During the year ended December 31, 2025, the Company has not made any material changes to its indefinite reinvestment assertion with respect to earnings reinvested in its foreign operations. The majority of our global unremitted foreign earnings have been taxed or would be exempt from United States tax upon repatriation. The Company has made no provision for United States income taxes or additional non-United States taxes on certain undistributed earnings or outside basis differences of non-United States subsidiaries in which the Company remains indefinitely reinvested. A portion of these undistributed earnings may be subject to foreign and United States tax consequences upon remittance. The Company cannot practically estimate the amount of additional taxes that might be payable on those undistributed earnings.
The Company records a liability for certain unrecognized income tax benefits for which it is more likely than not that a tax position will not be sustained upon examination by the respective taxing authority (“uncertain tax positions”). This liability for such uncertain tax positions includes the amount of benefit included in (i) its previously filed income tax returns and (ii) its financial results expected to be included in income tax returns to be filed for periods through the date of its Consolidated Financial Statements. The Company’s total unrecognized tax benefits were $18.6 million, $17.1 million and $30.9 million as of December 31, 2025, 2024 and 2023, respectively, inclusive of $5.3 million, $4.7 million and $12.1 million, respectively, of interest and penalties. The Company records interest and penalties on uncertain tax positions as a component of Income tax expense, which was an expense of $0.2 million, a benefit of $6.2 million and an expense of $7.9 million for the years ended December 31, 2025, 2024 and 2023, respectively.
The table below includes a reconciliation of the beginning and ending amount of gross unrecognized tax benefits (inclusive of associated interest and penalties).
| (In thousands) | |||||
Balance, January 1, 2023 | $ | 20,203 | |||
| Addition for tax positions taken in prior periods | 13,514 | ||||
| Reductions related to settlements with taxing authorities | (4,160) | ||||
| Other, including the impact of foreign currency translation | 1,314 | ||||
Balance, December 31, 2023 | 30,871 | ||||
| Addition for tax positions taken in prior periods | 6,436 | ||||
| Reductions for tax positions taken in prior periods | (7,825) | ||||
| Reductions related to settlements with taxing authorities | (9,255) | ||||
| Reductions resulting from a lapse of applicable statute of limitations | (51) | ||||
| Other, including the impact of foreign currency translation | (3,092) | ||||
Balance, December 31, 2024 | 17,084 | ||||
| Addition for tax positions taken in prior periods | 7,300 | ||||
| Reductions for tax positions taken in prior periods | (2,201) | ||||
| Reductions related to settlements with taxing authorities | (3,624) | ||||
| Reductions resulting from a lapse of applicable statute of limitations | (1,484) | ||||
| Other, including the impact of foreign currency translation | 1,513 | ||||
Balance, December 31, 2025 | $ | 18,588 | |||
The Company files numerous group and separate tax returns in Unites States federal and state jurisdictions, as well as international jurisdictions. The Company is routinely examined by various United States and non-United States taxing authorities. The Company is subject to audit by the United States, various states and foreign jurisdictions.
The Company reviews its global tax provisions on a quarterly basis. The Company accrues or adjusts contingent tax liabilities based on these reviews, the results of discussions and resolutions of matters with certain tax authorities, tax rulings and court decisions and the expiration of the statutes of limitations.
The table below includes a breakout of income taxes paid for the year ended December 31, 2025.
| Year Ended December 31, | |||||
| 2025 | |||||
| (In thousands) | |||||
| Federal | $ | 872 | |||
| State | 1,439 | ||||
| Foreign | 90,379 | ||||
| $ | 92,690 | ||||
| Income taxes paid (net of refunds) exceeded 5 percent of total income taxes paid (net of refunds) in the following jurisdictions: | |||||
| Foreign: | |||||
| India | $ | 11,833 | |||
| Brazil | 11,537 | ||||
| Switzerland | 8,724 | ||||
| China | 8,572 | ||||
| United Kingdom | 6,765 | ||||
| Peru | 6,003 | ||||
| Czech Republic | 5,798 | ||||
| Mexico | 5,039 | ||||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 20, 2026 | Showing above |
| 2024 | Feb 20, 2025 | |
| 2023 | Feb 29, 2024 | |
| 2022 | Mar 7, 2023 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.