INTERFACE INCTILE
INTERFACE INC Income Taxes Disclosure
INCOME TAXES
Income before income taxes consisted of the following:
| Fiscal Year | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| U.S. operations | $ | 64,601 | $ | 37,060 | $ | 3,611 | |||||||||||
| Foreign operations | 72,250 | 76,494 | 60,043 | ||||||||||||||
| Income before income taxes | $ | 136,851 | $ | 113,554 | $ | 63,654 | |||||||||||
Provisions for federal, foreign and state income taxes in the consolidated statements of operations consisted of the following components:
| Fiscal Year | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Current expense: | |||||||||||||||||
| Federal | $ | 7,209 | $ | 7,599 | $ | 5,523 | |||||||||||
| Foreign | 23,235 | 20,982 | 18,330 | ||||||||||||||
| State | 2,843 | 2,481 | 2,167 | ||||||||||||||
| Current expense | 33,287 | 31,062 | 26,020 | ||||||||||||||
| Deferred (benefit) expense: | |||||||||||||||||
| Federal | 182 | (3,279) | (4,810) | ||||||||||||||
| Foreign | (12,846) | (841) | (1,212) | ||||||||||||||
| State | 130 | (334) | (861) | ||||||||||||||
| Deferred benefit | (12,534) | (4,454) | (6,883) | ||||||||||||||
| Total income tax expense | $ | 20,753 | $ | 26,608 | $ | 19,137 | |||||||||||
Income taxes paid (net of refunds) consisted of the following:
| Fiscal Year | |||||
| 2025 | |||||
| (in thousands) | |||||
| Federal | $ | 9,118 | |||
Foreign: | |||||
| Germany | 11,538 | ||||
| Netherlands | 5,546 | ||||
| China | 2,069 | ||||
Other Foreign | 5,684 | ||||
State and local | 3,384 | ||||
Total Income taxes paid, net of refunds | $ | 37,339 | |||
Income tax payments amounted to approximately $37.8 million and $25.8 million for the years 2024 and 2023, respectively. During the years 2024 and 2023, the Company received income tax refunds of $3.3 million and $2.5 million, respectively.
We adopted ASU 2023-09 on a prospective basis beginning with fiscal year 2025. The following table reconciles the U.S. federal statutory rate of 21% to our effective income tax rate for fiscal year 2025 in accordance with ASU 2023-09:
Fiscal Year | ||||||||||||||
| 2025 | ||||||||||||||
(in thousands) | ||||||||||||||
Amount | Percent | |||||||||||||
Income taxes at U.S. federal statutory rate | $ | 28,739 | 21.0 | % | ||||||||||
State and local income taxes, net of federal income tax effect (1) | 2,369 | 1.7 | % | |||||||||||
| Foreign Tax Effects | ||||||||||||||
| Germany | ||||||||||||||
Statutory tax rate difference between Germany and U.S. | (1,651) | (1.2) | % | |||||||||||
| Trade tax | 5,974 | 4.4 | % | |||||||||||
| Enacted changes in tax laws or rates | (6,331) | (4.6) | % | |||||||||||
Remeasurement of deferred tax liability | (4,048) | (3.0) | % | |||||||||||
| Other | (1,207) | (0.9) | % | |||||||||||
| Other foreign jurisdictions | 2,521 | 1.9 | % | |||||||||||
| Effect of Cross-Border Tax Laws | ||||||||||||||
Other | (1,506) | (1.1) | % | |||||||||||
| Tax credits | ||||||||||||||
Other | (887) | (0.6) | % | |||||||||||
Nontaxable or non-deductible items | ||||||||||||||
| Non-deductible employee compensation | 1,823 | 1.3 | % | |||||||||||
Other | (1,383) | (1.0) | % | |||||||||||
Changes in valuation allowances | (3,693) | (2.7) | % | |||||||||||
Changes in unrecognized tax benefits | 33 | — | % | |||||||||||
Income tax expense and effective tax rate | $ | 20,753 | 15.2 | % | ||||||||||
(1) State taxes in California, Georgia, Massachusetts, Minnesota, New Jersey, and New York comprise the majority (greater than 50 percent) of the tax effect in this category.
The following table reconciles the U.S. federal statutory income tax rate of 21% to our effective income tax rate for fiscal years 2024 and 2023 based on the required disclosure prior to our adoption of ASU 2023-09:
Fiscal Year | |||||||||||
| 2024 | 2023 | ||||||||||
(in thousands) | |||||||||||
| Income taxes at U.S. federal statutory rate | $ | 23,846 | $ | 13,367 | |||||||
| Increase (decrease) in taxes resulting from: | |||||||||||
| State income taxes, net of federal tax effect | 2,319 | (432) | |||||||||
| Non-deductible business expenses | 940 | 747 | |||||||||
| Non-deductible employee compensation | 1,587 | 1,681 | |||||||||
| Tax effects of Company-owned life insurance | (576) | (587) | |||||||||
| Tax effects of undistributed earnings from foreign subsidiaries not deemed to be indefinitely reinvested | 443 | 779 | |||||||||
| Foreign and U.S. tax effects attributable to foreign operations | 4,532 | 1,537 | |||||||||
| Expiring tax attributes | 4,125 | 3,780 | |||||||||
| Valuation allowance effect | (7,330) | (879) | |||||||||
| Research and development tax credits | (703) | (820) | |||||||||
| Foreign tax rate change related to UK pension | (2,493) | — | |||||||||
| Unrecognized tax benefits | (135) | (79) | |||||||||
| Other | 53 | 43 | |||||||||
| Income tax expense | $ | 26,608 | $ | 19,137 | |||||||
On July 4, 2025, the U.S. enacted H.R. 1, commonly referred to as the One Big Beautiful Bill Act (“OBBBA”). The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework and the restoration of favorable tax treatment for certain business provisions. The OBBBA did not have a material impact on our estimated annual effective tax rate in 2025.
On December 20, 2021, the Organization for Economic Co-operation and Development (“OECD”) published Pillar Two Model Rules defining the global minimum tax, which calls for the taxation of large corporations at a minimum rate of 15%. The OECD has since issued administrative guidance providing transition and safe harbor rules around the implementation of the Pillar Two global minimum tax. While the U.S. has not adopted Pillar Two, many non-U.S. tax jurisdictions have enacted legislation to adopt Pillar Two Model Rules beginning in 2024 (including the European Union Member States) or announced their plans to enact legislation in future years. For fiscal year 2025, these provisions did not have a material impact on the Company’s financial statements. We will continue to closely monitor ongoing developments and evaluate any potential impact on future periods.
Deferred income taxes for the years ended December 28, 2025 and December 29, 2024, 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.
The temporary differences that give rise to significant portions of the deferred tax assets and liabilities are as follows:
| End of Fiscal Year | |||||||||||
| 2025 | 2024 | ||||||||||
| (in thousands) | |||||||||||
Deferred tax assets | |||||||||||
| Lease liability | $ | 22,504 | $ | 22,329 | |||||||
| Net operating loss and interest carryforwards | 5,091 | 7,964 | |||||||||
| Federal tax credit carryforwards | 2,131 | 4,036 | |||||||||
| Deferred compensation | 17,314 | 16,521 | |||||||||
| Pensions | 4,155 | 4,982 | |||||||||
| Property and equipment | 658 | 438 | |||||||||
| Inventory | 2,516 | 3,121 | |||||||||
| Prepaids, accruals and reserves | 10,493 | 9,235 | |||||||||
| Capitalized costs | 11,727 | 10,327 | |||||||||
Deferred tax assets, gross | 76,589 | 78,953 | |||||||||
| Valuation allowance | (5,235) | (10,028) | |||||||||
Deferred tax assets, net | $ | 71,354 | $ | 68,925 | |||||||
Deferred tax liabilities | |||||||||||
| Property and equipment | $ | 27,283 | $ | 24,899 | |||||||
| Inventory | 3,152 | 4,014 | |||||||||
| Intangible assets | 12,823 | 20,970 | |||||||||
| Lease asset | 20,983 | 20,887 | |||||||||
| Pensions | 3,694 | 3,866 | |||||||||
| Foreign currency | 667 | 556 | |||||||||
| Foreign withholding and U.S. state taxes on unremitted earnings | 681 | 773 | |||||||||
| Other | 164 | 158 | |||||||||
| Deferred tax liabilities | 69,447 | 76,123 | |||||||||
Net deferred tax assets (liabilities) | $ | 1,907 | $ | (7,198) | |||||||
Management believes, based on the Company’s history of taxable income and expectations for the future, that it is more likely than not that future taxable income will be sufficient to fully utilize the material U.S. federal and foreign deferred tax assets at December 28, 2025. The Company recorded a valuation allowance on certain state net operating loss carryforwards that it does not believe are more likely than not to be utilized in the future.
In July 2025, Germany enacted tax legislation to gradually reduce the corporate income tax rate. The current income tax rate of 15% is set to decrease by 1% annually beginning in 2028 reaching 10% by 2032. As a result of this change to tax rates, deferred assets and liabilities were remeasured using the new rates applicable to the periods in which the underlying temporary differences are expected to reverse. The remeasurement of the Company’s German deferred tax positions and other deferred tax adjustments resulted in a favorable deferred income tax benefit of $10.4 million in fiscal year 2025.
As of December 28, 2025, the Company has approximately $2.1 million of foreign tax credit carryforwards with expiration dates through 2034. As of December 29, 2024, the Company had a full valuation allowance on all of its foreign tax credit carryforwards. During fiscal year 2025, the Company released $3.7 million of the valuation allowance on its foreign tax credit carryforwards that the Company expects to utilize and retained $0.3 million on the portion that the Company does not expect to utilize before the expiration date.
As of December 28, 2025, the Company has approximately $153.7 million in state net operating loss carryforwards relating to continuing operations with expiration dates through 2044 and has provided a valuation allowance against $107.0 million of such losses, which the Company does not expect to utilize.
Historically, the Company has not provided for U.S. income taxes and foreign withholding taxes on the undistributed accumulated earnings of its foreign subsidiaries, with the exception of Canada, China, and Thailand where a portion of our undistributed earnings are not deemed to be permanently reinvested. The Company provided for U.S. income taxes and foreign withholding taxes on the undistributed earnings that were not permanently reinvested at December 28, 2025 and December 29, 2024.
Although the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) created a dividends received deduction that generally eliminates additional U.S. federal income taxes on dividends from our foreign subsidiaries, the Company continues to assert that all of its undistributed earnings in its non-U.S. subsidiaries, excluding undistributed earnings for which U.S. income taxes and foreign withholding taxes have been provided, are indefinitely reinvested outside of the U.S. The Company expects that domestic cash resources will be sufficient to fund its domestic operations and cash commitments in the future. In the event the Company determines not to continue to assert that all or part of its undistributed earnings in its non-U.S. subsidiaries are permanently reinvested, an actual repatriation of earnings from its non-U.S. subsidiaries could still be subject to additional foreign withholding and U.S. state taxes, the determination of which is not practicable.
The Company’s federal income tax returns are subject to examination for the years 2022 to the present. The Company files returns in numerous state and local jurisdictions and in general it is subject to examination by the state tax authorities for the years 2020 to the present. The Company files returns in numerous foreign jurisdictions and in general it is subject to examination by the foreign tax authorities for the years 2020 to the present.
As of December 28, 2025 and December 29, 2024, non-current deferred tax assets were reduced by approximately $1.9 million and $2.6 million of unrecognized tax benefits, respectively. As of December 28, 2025, and December 29, 2024, the Company had $4.9 million and $4.8 million, respectively, of unrecognized tax benefits, including accrued interest and penalties.
The Company recognizes accrued interest and income tax penalties related to unrecognized tax benefits as a component of income tax expense. As of December 28, 2025 and December 29, 2024, the Company accrued interest and penalties of $0.5 million and $0.4 million, respectively, which are included in the total unrecognized tax benefit noted above.
A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits is as follows:
| Fiscal Year | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (in thousands) | |||||||||||||||||
Balance at beginning of year | $ | 4,351 | $ | 4,532 | $ | 5,352 | |||||||||||
| Increases related to tax positions taken during the current year | 323 | 316 | 320 | ||||||||||||||
| Increases related to tax positions taken during the prior years | 55 | — | 19 | ||||||||||||||
| Decreases related to tax positions taken during the prior years | (142) | (208) | (30) | ||||||||||||||
| Decreases related to lapse of applicable statute of limitations | (249) | (289) | (1,142) | ||||||||||||||
| Changes due to foreign currency translation | 6 | — | 13 | ||||||||||||||
Balance at end of year | $ | 4,344 | $ | 4,351 | $ | 4,532 | |||||||||||
If the Company were to prevail on all uncertain tax positions, there would be a favorable impact on the Company’s effective tax rate of approximately $4.9 million in future periods. The timing of the ultimate resolution of the Company’s tax matters is dependent on a number of factors, many of which are outside the Company’s control.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 25, 2026 | Showing above |
| 2024 | Feb 26, 2025 | |
| 2023 | Feb 28, 2024 | |
| 2022 | Mar 2, 2022 | |
| 2021 | Mar 3, 2021 | |
| 2019 | Feb 26, 2020 | |
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.