Latham Group, Inc.SWIM
Latham Group, Inc. Income Taxes Disclosure
INCOME TAXES
The Company is subject to United States federal, state, and local income taxes, as well as other foreign income taxes. The domestic and foreign components of its income (loss) before income taxes and total income taxes paid are as follows (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Income (loss) before income taxes: | |||||||||||||||||
| United States | $ | 9,168 | $ | 559 | $ | (16,303) | |||||||||||
| Foreign | 4,320 | (9,299) | 6,243 | ||||||||||||||
| Total | $ | 13,488 | $ | (8,740) | $ | (10,060) | |||||||||||
| Year Ended December 31, | ||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||
| Federal | $ | 6,139 | $ | 12,271 | $ | 4,985 | ||||||||||||||
| State | 1,659 | $ | 2,520 | 1,050 | ||||||||||||||||
| Foreign | 382 | $ | 684 | 955 | ||||||||||||||||
| Total income taxes paid | $ | 8,180 | $ | 15,475 | $ | 6,990 | ||||||||||||||
| Year Ended December 31, | ||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||
| Jurisdictions greater than 5% | ||||||||||||||||||||
| United States Federal | $ | 6,139 | $ | 12,271 | $ | 4,985 | ||||||||||||||
| Australia | * | * | * | |||||||||||||||||
| New Zealand | * | * | 670 | |||||||||||||||||
| Canada | * | * | * | |||||||||||||||||
| States: None | * | * | * | |||||||||||||||||
* The amount of income taxes paid during the year does not meet the five percent disaggregation threshold.
Income tax expense (benefit) from continuing operations is composed of the following (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current income tax expense (benefit): | |||||||||||||||||
| United States federal | $ | (1,314) | $ | 8,364 | $ | 710 | |||||||||||
| United States state and local | 737 | 1,890 | 515 | ||||||||||||||
| Foreign | 536 | 544 | 788 | ||||||||||||||
| Total current tax expense | (41) | 10,798 | 2,013 | ||||||||||||||
| Deferred income tax (benefit) expense: | |||||||||||||||||
| United States federal | 2,041 | (7,335) | (8,965) | ||||||||||||||
| United States state and local | 298 | (968) | (1,000) | ||||||||||||||
| Foreign | 66 | 6,625 | 280 | ||||||||||||||
| Total deferred tax (benefit) | $ | 2,405 | $ | (1,678) | $ | (9,685) | |||||||||||
| Total income tax expense (benefit): | |||||||||||||||||
| United States federal | $ | 727 | $ | 1,029 | $ | (8,255) | |||||||||||
| United States state and local | 1,035 | 922 | (485) | ||||||||||||||
| Foreign | 602 | 7,169 | 1,068 | ||||||||||||||
| Total income tax expense (benefit) | $ | 2,364 | $ | 9,120 | $ | (7,672) | |||||||||||
| Year Ended December 31, 2025 | Year Ended December 31, 2024 | Year Ended December 31, 2023 | ||||||||||||||||||||||||
| Federal statutory tax rate | $ | 2,833 | 21.0 | % | $ | (1,835) | 21.0 | % | $ | (2,113) | 21.0 | % | ||||||||||||||
| Domestic state and local income taxes, net of federal effect | 1,330 | 9.9 | % | 1,469 | (16.8) | % | (1,411) | 14.2 | % | |||||||||||||||||
| Tax Credits | ||||||||||||||||||||||||||
| Research and Development Tax Credit | (1,339) | (9.9) | % | — | — | % | — | — | % | |||||||||||||||||
| Effects of Cross-Border Tax Laws | ||||||||||||||||||||||||||
| Global intangible low taxed income | — | — | % | (171) | 2.0 | % | 337 | (3.4) | % | |||||||||||||||||
| Foreign derived intangible income | (278) | (2.1) | % | 118 | (1.4) | % | (45) | 0.4 | % | |||||||||||||||||
| Canadian branch accounting | (223) | (1.7) | % | (1,642) | 18.8 | % | (117) | 1.2 | % | |||||||||||||||||
| Nontaxable or Nondeductible Items | ||||||||||||||||||||||||||
| Meals and entertainment | 256 | 1.9 | % | 332 | (3.8) | % | 298 | (3.0) | % | |||||||||||||||||
| Executive compensation disallowance | 778 | 5.8 | % | 242 | (2.8) | % | 329 | (3.3) | % | |||||||||||||||||
| Nondeductible stock compensation | (504) | (3.7) | % | 179 | (2.1) | % | 2,706 | (26.9) | % | |||||||||||||||||
| Foreign restructuring | — | — | % | 1,509 | (17.3) | % | — | — | % | |||||||||||||||||
| Capital loss expiration | — | — | % | 3,171 | (36.3) | % | — | — | % | |||||||||||||||||
| Partnership income | (449) | (3.3) | % | (242) | 2.8 | % | (15) | 0.1 | % | |||||||||||||||||
| Nondeductible expenses and other adjustments | 264 | 2.0 | % | 32 | (0.5) | % | (261) | 2.5 | % | |||||||||||||||||
| Change in Unrecognized Tax Benefits | — | — | % | — | — | % | (10,237) | 101.8 | % | |||||||||||||||||
| Change in valuation allowance | — | — | % | (3,171) | 36.3 | % | 3,114 | (31.0) | % | |||||||||||||||||
| Foreign Tax Effects | ||||||||||||||||||||||||||
| Australia | ||||||||||||||||||||||||||
| Foreign rate differential | (10) | (0.1) | % | (147) | 1.7 | % | 511 | (5.1) | % | |||||||||||||||||
| Amortization | 241 | 1.8 | % | 274 | (3.1) | % | 374 | (3.7) | % | |||||||||||||||||
| Penalties and fines | — | — | % | — | — | % | 411 | (4.1) | % | |||||||||||||||||
| Restructuring gain | — | — | % | (111) | 1.3 | % | (2,141) | 21.4 | % | |||||||||||||||||
| Other | 5 | — | % | 3 | — | % | 6 | (0.1) | % | |||||||||||||||||
| Canada | ||||||||||||||||||||||||||
| Foreign rate differential | 138 | 1.0 | % | (430) | 4.9 | % | (25) | 0.2 | % | |||||||||||||||||
| Nondeductible expenses and adjustments | — | — | % | — | — | % | 542 | (5.4) | % | |||||||||||||||||
| Change in valuation allowance | (742) | (5.5) | % | 8,700 | (99.5) | % | — | — | % | |||||||||||||||||
| Restructuring | — | — | % | 749 | (8.6) | % | — | — | % | |||||||||||||||||
| Other | (37) | (0.3) | % | 8 | (0.1) | % | (7) | 0.1 | % | |||||||||||||||||
| New Zealand | ||||||||||||||||||||||||||
| Foreign rate differential | 97 | 0.7 | % | 82 | (0.9) | % | 74 | (0.7) | % | |||||||||||||||||
| Other | 4 | — | % | 1 | — | % | (2) | — | % | |||||||||||||||||
| Total | $ | 2,364 | 17.5 | % | $ | 9,120 | (104.4) | % | $ | (7,672) | 76.2 | % | ||||||||||||||
For the year ended December 31, 2025, state and local income taxes in California, Illinois, Indiana, Minnesota, New Jersey, Tennessee and Utah comprise the majority of the domestic state and local income taxes. For the year ended December 31, 2024 these states were Illinois, Indiana, Minnesota, New Jersey, Pennsylvania, Tennessee and Utah and in 2023, they were California, Florida, Illinois, Indiana, New Jersey, Pennsylvania and Tennessee.
The following table summarizes changes in the valuation allowance (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Balance at January 1 | $ | 8,700 | $ | 3,114 | $ | — | |||||||||||
| Additions | — | 8,700 | 3,114 | ||||||||||||||
| Deductions | (402) | (3,114) | — | ||||||||||||||
| Balance at December 31 | $ | 8,298 | $ | 8,700 | $ | 3,114 | |||||||||||
As of December 31, 2025 and 2024, after consideration of all evidence, both positive and negative, management concluded that it is not more likely than not that it would be able to realize all of its deferred tax assets of one of its foreign subsidiaries and that a valuation allowance of $8.3 million and $8.7 million was necessary as of December 31, 2025 and 2024, respectively.
During the year ended December 31, 2023, there was a valuation allowance for the Company's capital loss carryforward deferred tax asset which was reversed in 2024 because the capital loss carryforward expired. It is reasonably possible that the Company’s estimates of future taxable income may change within the next 12 months, resulting in a change to the valuation allowance in one or more jurisdictions.
On July 4, 2025, the President signed into law the One Big Beautiful Bill Act ("OBBBA"). The OBBBA maintains the 21.0% corporate tax rate and makes permanent many of the beneficial expired and expiring tax provisions originally enacted in the Tax Cuts and Jobs Act of 2017, including the immediate expensing of domestic research and development expenditures, more favorable interest deductibility and 100 percent bonus depreciation with effective dates in 2025. Revisions to the international tax framework are effective for the year ended December 31, 2026.
Deferred Income Taxes
Deferred income taxes recognize the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the carrying amounts used for income tax purposes, and the impact of available net operating loss and tax credit carryforwards. These items are stated at the enacted tax rates that are expected to be in effect when taxes are actually paid or recovered. The Company has elected with respect to its treatment of global intangible low-tax income ("GILTI") to account for taxes on GILTI as incurred.
Deferred income tax assets and liabilities recorded on the consolidated balance sheets as of December 31, 2025 and 2024 consist of the following (in thousands):
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred tax assets: | |||||||||||
| Net operating loss carryforwards | $ | 11,179 | $ | 10,001 | |||||||
| Fixed assets foreign | 97 | — | |||||||||
| Inventories, net | 2,105 | 3,082 | |||||||||
| Warranty reserve | 651 | 469 | |||||||||
| Trade receivables | 1,562 | 1,375 | |||||||||
| Profits interest units | 4,042 | 3,437 | |||||||||
| Section 163(j) | 5,474 | 4,902 | |||||||||
| Accrued expenses | 280 | 350 | |||||||||
| Transaction costs | 1,130 | 1,180 | |||||||||
| Operating lease liabilities | 7,602 | 6,968 | |||||||||
| Other | 1,135 | 2,276 | |||||||||
| Gross deferred tax assets | 35,257 | 34,040 | |||||||||
| Valuation allowance | (8,298) | (8,700) | |||||||||
| Total deferred tax asset | 26,959 | 25,340 | |||||||||
| Less: Foreign deferred tax benefit | (718) | (729) | |||||||||
| Total domestic deferred tax asset | $ | 26,241 | $ | 24,611 | |||||||
| Deferred tax liabilities: | |||||||||||
| Intangible assets | (40,091) | (42,702) | |||||||||
| Property and equipment, net | (11,196) | (6,056) | |||||||||
| Prepaid expenses and other | (1,505) | (1,165) | |||||||||
| Investments in partnerships | (322) | (318) | |||||||||
| Operating lease right-of-use assets | (7,392) | (6,717) | |||||||||
| Other | (4) | — | |||||||||
| Total deferred tax liabilities | (60,510) | (56,958) | |||||||||
| Net deferred tax liabilities | $ | (34,269) | $ | (32,347) | |||||||
| Classification in the Consolidated Balance Sheet | |||||||||||
| Non-current deferred tax assets | $ | 718 | $ | 729 | |||||||
| Non-current deferred tax liabilities | (34,269) | (32,347) | |||||||||
| Net deferred tax liabilities | $ | (33,551) | $ | (31,618) | |||||||
FASB ASC 740, Accounting for Income Taxes requires that the Company reduce its deferred income tax assets by a valuation allowance if, based on the weight of the available evidence, it is more likely than not that all or a portion of a deferred tax asset will not be realized.
The Company reinvests earnings of foreign operations indefinitely and, accordingly, does not provide for income taxes that could result from the remittance of such earnings. The Company acknowledges that it would need to accrue and pay taxes should it decide to repatriate cash generated from earnings of its foreign subsidiaries that are considered indefinitely reinvested but expects that the potential tax liability would be insignificant.
Tax Uncertainties
The liability related to uncertain tax positions, exclusive of interest, was $6.4 million at December 31, 2022. As of December 31, 2023, the statute of limitations expired with respect to the Company’s 2019 U.S. Federal income tax return
for which the uncertain tax position liability had been recorded. As a result of the expiration of the statute of limitations, the Company released the uncertain tax position liability with a corresponding net tax benefit of $7.5 million (a gross tax benefit of $10.6 million from the liability release offset by tax expense of $3.1 million from establishing a valuation allowance on an associated deferred tax asset) during the fourth fiscal quarter of 2023. There was no liability related to uncertain tax positions as of December 31, 2025 and 2024.
The Company is subject to income taxes in the U.S., certain states and numerous foreign jurisdictions. While the Company believes it has adequately provided for all tax positions, amounts asserted by taxing authorities could be greater than its accrued position. Accordingly, additional provisions on federal and foreign tax-related matters could be recorded in the future as revised estimates are made or the underlying matters are settled or otherwise resolved.
The Company files a federal consolidated tax return which includes all U.S. entities as well several combined/consolidated state tax returns and separate state tax returns. In addition, the Company files Canadian, Australian and New Zealand tax returns for its Canadian, Australian, and New Zealand entities. The Company is subject to the regular examination of our income tax returns by tax authorities. The Company does not have any federal audits in process. Examinations in material jurisdictions or changes in laws, rules, regulations or interpretations by local taxing authorities could result in impacts to tax years open under statute or to foreign operating structures currently in place. The Company regularly assesses the likelihood of adverse outcomes resulting from these examinations or changes in laws, rules, regulations or interpretations to determine the adequacy of our provision for taxes. It is possible the outcomes from these examinations will have a material adverse effect on our financial condition and operating results.
Tax years from the fiscal year ended December 31, 2022 through present are open for examination in the U.S. Tax years and tax periods ended December 31, 2021 through present are open for state examination. Tax years and tax periods from June 30, 2022 through present are currently open for examination in Canada. Tax years and tax periods from June 30, 2021 through present are currently open for examination in Australia. Tax years and tax periods from March 31, 2021 through present are currently open for examination in New Zealand.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 4, 2026 | Showing above |
| 2024 | Mar 5, 2025 | |
| 2023 | Mar 13, 2024 | |
| 2022 | Mar 7, 2023 | |
| 2021 | Mar 10, 2022 | |
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.