TERADATA CORP DE

Previous wording

At Teradata Corporation ("we," "us," "Teradata," or the "Company"), we believe that people thrive when empowered with trusted information. We are focused on helping organizations improve business performance, enrich customer experiences, and integrate data across the enterprise. As such, we strive to innovate and deliver trusted solutions for their toughest data and analytics challenges. That is why we built our comprehensive open and connected cloud analytics and data platform for artificial intelligence ("AI"). With our Teradata Vantage platform, underpinned by our extensive patented workload management optimization, we are well positioned to help enterprises solve business problems and deliver business breakthroughs with its capabilities to provide harmonized data, trusted AI, and faster innovation. As a result, we believe that we empower our customers - and our customers' customers - to make better, more confident decisions, engage in faster innovation, and drive positive impact within the enterprise.

Current wording

At Teradata Corporation ("we," "us," "Teradata," or the "Company"), we believe that people thrive when empowered with trusted information. We are focused on helping organizations improve business performance, enrich customer experiences, and integrate data across the enterprise. As such, we strive to innovate and deliver trusted solutions for their toughest data and analytics challenges. That is why we built our open and connected hybrid cloud analytics and data platform for AI. With our Teradata Vantage platform, underpinned by our extensive patented workload management optimization technology, we are well positioned to help enterprises deliver business breakthroughs and solve business problems with our capabilities to provide harmonized data, trusted AI, and faster innovation, at scale. As companies embrace AI, they need data at scale. Data at scale is the foundation of generative AI applications, and data at scale is what Teradata provides. As a result, we believe that we empower our customers to make better, more confident decisions, engage in faster innovation, and drive positive impact within the enterprise.

Previous wording

Teradata is recognized by industry analysts as offering a cloud analytics and data platform with next-generation, cloud-native deployment and expansive analytics capabilities. Teradata’s strategy is discussed under Part I, Item I of this Annual Report on Form 10-K.

Current wording

Teradata’s business, key priorities, and strategy is discussed under Part I, Item I of this Annual Report on Form 10-K.

Previous wording

•Revenue of$1,833 million increased by 2% in 2023 as compared to 2022, with a 5% increase in recurring revenue. Foreign currency fluctuations had a 2% adverse impact on total revenue compared to the prior year. The recurring revenue increase was due primarily to an increase in Public Cloud revenue from migrations and expansions. Perpetual software licenses, hardware and other revenue decreased by 31% and consulting services revenue decreased by 5%. Revenues from perpetual software licenses, hardware and other decreased primarily due to our strategic shift towards recurring revenue. Thedecline in consulting service revenue was additionally due to our focus on higher-margin engagements and purposeful decrease in consulting services given the development of our strategic partner ecosystem.

Current wording

•Revenue of $1,750 million decreased by 5% in 2024 as compared to 2023, with a 1% decrease in recurring revenue. Foreign currency fluctuations had a 2% adverse impact on total revenue and a 2% adverse impact on recurring revenue compared to the prior year. In addition to adverse foreign currency impact, the recurring revenue decline was primarily driven by a decrease in revenue from on-premises solutions, which was offset in part by an increase in Public Cloud revenue. Perpetual software licenses, hardware and other revenue decreased by 49% and consulting services revenue decreased by 16%. Revenues from perpetual software licenses, hardware and other decreased primarily due to our strategic shift towards recurring revenue. Thedecline in consulting service revenue was additionally due to our focus on higher-margin engagements and purposeful decrease in consulting services given the development of our strategic partner ecosystem.

Previous wording

•Gross profit as a percent of revenue was 60.8% in 2023, anincrease from 60.2% in 2022, primarily due to a higher mix of recurring revenue and improving cloud gross profit rates year-over-year.

Current wording

•Gross profit as a percent of revenue was 60.5% in 2024, a slight decrease from 60.8% in 2023, primarily due to a higher mix of Public Cloud revenue, partially offset by an improvement in Public Cloud margins year-over-year.

Previous wording

•Operating expenses in 2023 decreased by 4% as compared to 2022, primarily drivenbyour cost discipline initiatives and afavorable impact from foreign currency fluctuations.

Current wording

•Operating expenses in 2024 decreased by 9% as compared to 2023, primarily drivenbyour cost discipline initiatives and afavorable impact from foreign currency fluctuations.

Previous wording

•Operating income was$186 million in 2023, up from$118 million in 2022.

Current wording

•Operating income was $209 million in 2024, up from $186 million in 2023.

Previous wording

•Net income was$62 million in 2023 versus net income of$33 million in 2022, primarily due to increased revenue and lower operating expenses. Diluted net earnings per share was$0.61 in 2023 compared to diluted earnings per share of$0.31 in 2022.

Current wording

•Net income was $114 million in 2024 versus net income of $62 million in 2023, primarily due to lower operating expenses and lower income tax expense. Diluted net earnings per share was $1.16 in 2024 compared to diluted earnings per share of $0.61 in 2023.

Previous wording

2023 compared to 2022 - Total revenue increased 2% in 2023, which included a 2% negative impact from foreign currency exchange rate fluctuations. Total revenue growth was led by increased recurring revenue, offset in part by lower perpetual software license, hardware, and other revenue, as well as lower consulting revenue. Recurring revenue grew 5% in 2023, which included a 2% negative impact from foreign currency exchange rate fluctuations. Recurring revenue growth was driven by an increase in cloud revenue as we continue our intentional shift to the cloud. All three regions experienced strong cloud revenue growth year-over-year.

Current wording

2024 compared to 2023 - Total revenue decreased 5% in 2024, which included a 2% negative impact from foreign currency exchange rate fluctuations. Recurring revenue declined 1% in 2024, which included a 2% negative impact from foreign currency exchange rate fluctuations. Within recurring revenue, a decline in revenue from on-premises solutions was partially offset by growth in Public Cloud revenue as we continued to migrate customers to the cloud.

Previous wording

Revenues from perpetual software licenses, hardware, and other were down 31% in 2023, including 2% of adverse impact from foreign currency exchange rate fluctuations, as customers continue to transition to our subscription-based offerings, consistent with our overall strategy towards recurring revenue.

Current wording

Revenues from perpetual software licenses, hardware, and other were down 49% in 2024, including 2% of adverse impact from foreign currency exchange rate fluctuations, as customers continue to transition to our subscription-based offerings, consistent with our overall strategy towards recurring revenue.

Previous wording

Consulting services revenue decreased 5%, including a 3% adverse impact from foreign currency exchange rate fluctuations, as we continue to realign and focus our consulting resources on higher-margin engagements. In this regard, we are focused on both direct engagement with customers and joint engagement with partners that drive increased software consumption within our targeted customer base.

Current wording

Consulting services revenue decreased 16%, including a 3% adverse impact from foreign currency exchange rate fluctuations, as we continue to realign and focus our consulting resources on higher-margin engagements. In this regard, we are focused on both direct engagement with customers and joint engagement with partners that drive increased software consumption within our targeted customer base.

Previous wording

As a portion of our operations and revenue occur outside the United States, and in currencies other than the U.S. dollar, we are exposed to fluctuations in foreign currency exchange rates. Based on currency rates as of January 31, 2024, Teradata is estimating a 1.0%-to-1.5%negative impact from currency translation on our 2024 full-year total revenues.

Current wording

As a portion of our operations and revenue occur outside the United States, and in currencies other than the U.S. dollar, we are exposed to fluctuations in foreign currency exchange rates. Based on currency rates as of December 31, 2024, Teradata is estimating a 1.5%-to-2.0% negative impact from currency translation on our 2025 full-year total revenues.

Previous wording

Total ARRincreased 6%versus the prior year, with declines in Maintenance and Software upgrade rights ARR, more than off-set by growth in Public Cloud ARR and Subscription ARR. Foreign currency fluctuations had a positive 1% impact on total ARR. Our overall ARR growth was primarily driven by increased demand for our differentiated offerings, increasing partner involvement, and incremental workloads driving migrations and expansions.

Current wording

Total ARR decreased 6% versus the prior year, with declines in Subscription, and Maintenance and Software upgrade rights ARR off-set in part by growth in Public Cloud ARR. Foreign currency fluctuations had a negative 2% impact on total ARR. Our overall ARR decline was primarily driven by on-premises erosions, elongated deal closing cycles and lower on-premises expansion activity, and was partially offset by growth in Public Cloud ARR.

Previous wording

Public Cloud ARR increased 48% versus the prior year primarily due to on-premises customers migrating to Teradata VantageCloud along with a strong net expansion rate of 124%. Foreign currency fluctuations had a positive 2% impact on Public Cloud ARR. Public Cloud ARR growth and the improved Cloud Net Expansion rate were driven by customer demand for our differentiated offerings, resulting in new workloads for both migrations and expansions. Subscription ARR increased 3% in 2023 from the prior year primarily due to net expansions, and included a 1% positive impact from foreign currency fluctuations.

Current wording

Public Cloud ARR increased 15% versus the prior year primarily due to on-premises customers migrating to Teradata VantageCloud along with a net expansion rate of 117%. Foreign currency fluctuations had a negative 3% impact on Public Cloud ARR. Public Cloud ARR growth and the Cloud Net Expansion rate were driven by customer demand for our differentiated offerings, resulting in new workloads for both migrations and expansions. Subscription ARR decreased 12% in 2024 from the prior year primarily due to migrations from on-premises to Public Cloud, and included a 2%adverse impact from foreign currency fluctuations.

Previous wording

Our Maintenance and Software upgrade rights ARRdeclined 38% compared to 2022. This was expected as we continue to transition to a subscription model and customers increasingly purchased Teradata on a subscription and/or public cloud basis.

Current wording

Our Maintenance and Software upgrade rights ARR declined 43% compared to 2023. This was expected as we continue to transition to a subscription model and customers increasingly purchased Teradata on a subscription and/or public cloud basis.

Previous wording

We expect to see expansion as the primary contributor for Total ARR growth in 2024 and expansion and conversion as the primary contributors for Public Cloud ARR growth in 2024.

Current wording

We expect to see expansion as the primary contributor for Total ARR growth in 2025 and expansion and conversion as the primary contributors for Public Cloud ARR growth in 2025. In addition, we expect a slight negative impact from annual upfront software subscription revenue associated with on-premises recurring revenue in 2025.

Previous wording

2023 compared to 2022 - The increase in gross profit as a percentage of revenue was primarily driven by a higher mix of recurring revenue and improving cloud gross profit rates year-over-year.

Current wording

2024 compared to 2023 - The slight decrease in gross profit as a percentage of revenue was primarily driven by a higher mix of Public Cloud revenue, offset in part by improving Public Cloud gross profit rates year-over-year.

Previous wording

Recurring gross profit as a percentage of revenue was flat from the prior year, primarily because the negative gross profit rate impact on increased Public Cloud revenue was offset by improved Public Cloud gross profit rates year-over-year.

Current wording

Recurring gross profit as a percentage of revenue was down from the prior year, primarily because the negative gross profit rate impact on increased Public Cloud revenue, partially offset by improved Public Cloud gross profit rates year-over-year.

Previous wording

2023 compared to 2022 - Thede crease in selling, general and administrative ("SG&A") expense was primarily driven by the favorable impact from foreign currency exchange rate fluctuations and continued cost discipline as compared to the prior year.

Current wording

2024 compared to 2023 - The decrease in selling, general and administrative ("SG&A") expense was primarily driven by the favorable impact from foreign currency exchange rate fluctuations and continued cost discipline as compared to the prior year.

Previous wording

Other expense, net in 2023 and 2022, is comprised primarily of interest expense on long-term debt and finance leases, foreign currency transactions, as well as benefit costs for our pension and postemployment plans, partially offset by interest income earned on our cash and cash equivalents. Other expense ishigher in 2023, primarily due to a $13 million loss with respect to Argentina Blue Chip Swaps (a foreign exchange mechanism which effectively results in a parallel U.S. dollar exchange rate) in order to remit cash from our Argentine operations and$8 million higher losses resulting from foreign currency transactions compared to the prior year.

Current wording

Other expense, net in 2024 and 2023, is comprised primarily of interest expense on long-term debt and finance leases, foreign currency transactions, as well as benefit costs for our pension and postemployment plans, partially offset by interest income earned on our cash and cash equivalents. Other expense is lower in 2024, primarily due to $30 million less in losses resulting from foreign currency transactions compared to the prior year, and $9 million less in losses with respect to Argentina Blue Chip Swaps (a foreign exchange mechanism which effectively results in a parallel U.S. dollar exchange rate) in order to remit cash from our Argentine operations.

Previous wording

The 2023 effective tax rate included a net $18 million of discrete taxexpense, of which$15 million of tax expense related to the foreign currency translation impact on deferred and payable balances for our Argentina operations due to hyperinflation in Argentina and $10 million of tax expense related to a valuation allowance recorded against deferred tax assets for our operations in Argentina and other reorganization and transformation activities. These expenses were offset by $4 million of taxbenefit related to the reversal of a FIN 48 tax reserve due to the expiration of statute of limitations and$3 million of incremental taxbenefit related to stock-based compensation.

Current wording

The 2023 effective tax rate included a net $18 million of discrete tax expense, of which $15 million of tax expense related to the foreign currency translation impact on deferred and payable balances for our Argentina operations due to hyperinflation in Argentina and $10 million of tax expense related to a valuation allowance recorded against deferred tax assets for our operations in Argentina and other reorganization and transformation activities. These expenses were offset by $4 million of taxbenefit related to the reversal of a FIN 48 tax reserve due to the expiration of statute of limitations and $3 million of incremental taxbenefit related to stock-based compensation.

Previous wording

Effective on January 1, 2022, the U.S. tax law changed to require that R&D expenses be capitalized and amortized for tax purposes under Internal Revenue Code Section 174; as a result of this law change, we recognized approximately $2 million of tax expense related to global intangible low-taxed income ("GILTI") in our marginal effective tax rate for 2023 and approximately $4 million for 2022. We expect that a majority of our foreign earnings will be repatriated to the U.S.

Current wording

Effective on January 1, 2022, the U.S. tax law changed to require that R&D expenses be capitalized and amortized for tax purposes under Internal Revenue Code Section 174; as a result of this law change, we recognized approximately $2 million of tax expense related to global intangible low-taxed income ("GILTI") in our marginal effective tax rate for 2024 and approximately $2 million for 2023. We expect that a majority of our foreign earnings will be repatriated to the U.S.

Previous wording

Teradata ended 2023 with$486 million in cash and cash equivalents, a $83 million decrease from December 31, 2022, after using approximately $308 million for repurchases of Company common stock during the year. Cash provided by operating activities decreased by $44 million to$375 million in 2023 compared to 2022. The decrease in cash provided by operating activities was primarily due to the difference in cash taxes paid. Teradata had $65 million in net cash tax payments in 2023, compared to a net refund of $18 million in 2022, due primarily to a $50 million tax refund received the first quarter of 2022 related to our Cares Act carryback claim. Teradata used approximately $43 million of cash in 2023 for reorganization activities, including aligning our go-to-market function with our cloud-first strategy, and other activities to optimize our workforce, as compared to $26 million used in 2022 for similar purposes.

Current wording

Teradata ended 2024 with $420 million in cash and cash equivalents, a $66 million decrease from December 31, 2023, after using approximately $215 million for repurchases of Company common stock during the year. Cash provided by operating activities decreased by $72 million to $303 million in 2024 compared to 2023. The decrease in cash provided by operating activities was primarily due to lower billings year over year driving a decrease in deferred revenue and a lower receivables balance in 2024 as compared to the prior year. This was offset in part by higher net income, adjusted for non-cash items, in 2024 as compared to 2023. Teradata used approximately $37 million of cash in 2024 for reorganization activities, including the re-alignment of our go-to-market function and other activities to optimize our workforce, as compared to $43 million used in 2023 for similar purposes.

Previous wording

Financing activities and certain other investing activities, such as our strategic acquisition of Stemma Technologies during the third quarter of 2023, are not included in our calculation of free cash flow. The acquisition of Stemma Technologies was not financially material. In the fourth quarter of 2023, we entered into Blue Chip Swap transactions in order to remit cash from our Argentine operations that resulted in a pre-tax loss on investment of $13 million, the net purchases of which are reported in other investing activities in the Consolidated Statement of Cash Flows. There were no other material other investing activities in 2023 and 2022.

Current wording

Financing activities and certain other investing activities are not included in our calculation of free cash flow. In 2024, we entered into Blue Chip Swap transactions in order to remit cash from our Argentine operations that resulted in a pre-tax loss on investment of $4 million, compared to $13 million of such pre-tax losses in 2023, the net purchases of which are reported in other investing activities in the Consolidated Statement of Cash Flows. In 2023, other investing activities also included our strategic acquisition of Stemma Technologies. The acquisition of Stemma Technologies was not financially material. There were no other material other investing activities in 2024 and 2023.

Previous wording

Teradata’s financing activities for 2023 and 2022 primarily consisted of cash outflows for share repurchases and payments on our finance leases. At December 31, 2023, we had no outstanding borrowings on our $400 million Revolving Facility (as defined below).

Current wording

Teradata’s financing activities for 2024 and 2023 primarily consisted of cash outflows for share repurchases, payments on our finance leases, and repayments on long-term borrowings. At December 31, 2024, we had no outstanding borrowings on our $400 million Revolving Facility (as defined below).

Previous wording

•Our open market share repurchase program provides for the repurchase of Teradata stock periodically on an ongoing basis in open market transactions, through 10b5-1 programs, through accelerated share repurchase programs, in privately negotiated transactions, or through the use of derivative instruments, in accordance with applicable securities rules regarding issuer repurchases. The open market share repurchase program will expire on December 31, 2025. On November 1, 2021, our Board of Directors authorized an additional $1 billion for share repurchases under the open market share repurchase program. There is a total authority of $554 million remaining under the open market share repurchase program as of December 31, 2023.

Current wording

•Our open market share repurchase program provides for the repurchase of Teradata stock periodically on an ongoing basis in open market transactions, through 10b5-1 programs, through accelerated share repurchase programs, in privately negotiated transactions, or through the use of derivative instruments, in accordance with applicable securities rules regarding issuer repurchases. The open market share repurchase program will expire on December 31, 2025. On November 1, 2021, our Board of Directors authorized an additional $1 billion for share repurchases under the open market share repurchase program. There is a total authority of $352 million remaining under the open market share repurchase program as of December 31, 2024.

Previous wording

In the aggregate under the dilution offset share repurchase program and the open market share repurchase program, we repurchased approximately 7.0 million shares of our common stock at an average price per share of$43.79 in 2023 and approximately 9.4 million shares of our common stock at an average price per share of $41.16 in 2022.

Current wording

In the aggregate under the dilution offset share repurchase program and the open market share repurchase program, we repurchased approximately 5.8 million shares of our common stock at an average price per share of $36.99 in 2024 and approximately 7.0 million shares of our common stock at an average price per share of $43.79 in 2023.

Previous wording

Other financing activities, including net share settlement for the payroll tax liability of section 16 officers (as discussed in Item 5 of this Annual Report on Form 10-K), offset by proceeds from the ESPP and the exercise of stock options, net of tax, was a net inflow of $7 million for 2023 and a net inflow of $5 million (including fees from the credit facility agreement) for 2022.

Current wording

Other financing activities, including net share settlement for the payroll tax liability of section 16 officers (as discussed in Item 5 of this Annual Report on Form 10-K), offset by proceeds from the ESPP and the exercise of stock options, net of tax, was a net outflow of $1 million for 2024 and a net inflow of $7 million for 2023.

Previous wording

Our total cash and cash equivalents held outside the United States in various foreign subsidiaries was $428 million as of December 31, 2023 and $405 million as of December 31, 2022. The remaining balance held in the United States ("U.S.") was $58 million as of December 31, 2023 and $164 million as of December 31, 2022. The Company expects that a majority of its foreign earnings will be repatriated to the U.S. Effective January 1, 2018, the U.S. moved to a territorial system of international taxation, and as such will generally not subject future foreign earnings to U.S. taxation upon repatriation in future years.

Current wording

Our total cash and cash equivalents held outside the United States in various foreign subsidiaries was$350 million as of December 31, 2024 and $428 million as of December 31, 2023. The remaining balance held in the United States ("U.S.")was $70 million as of December 31, 2024 and $58 million as of December 31, 2023. The Company expects that a majority of its foreign earnings will be repatriated to the U.S. Effective January 1, 2018, the U.S. moved to a territorial system of international taxation, and as such will generally not subject future foreign earnings to U.S. taxation upon repatriation in future years.

Previous wording

Long-Term Debt. On June 28, 2022, we entered into a Credit Agreement that provides for (i) a five-year unsecured term loan in an aggregate principal amount of $500 million (the "Term Loan"), and (ii) a five-year unsecured revolving credit facility in an aggregate principal amount of up to $400 million, including a $50 million sublimit for the issuance of standby letters of credit and a $50 million sublimit for swingline loans (the "Revolving Facility" and, collectively with the Term Loan, the "Credit Facility"). The Credit Facility replaces our prior revolving credit agreement in the maximum principal of $400 million and our prior term loan agreement in the principal amount of $500 million, both of which were entered into in 2018 (the "Prior Agreements"). In connection with the execution of the Credit Facility, the $400 million term loan outstanding under the Prior Agreements was repaid in full. Our long-term debt is discussed in Note 12 of Notes to Consolidated Financial Statements. In addition, as disclosed in Note 9 of Notes to Consolidated Financial Statements, Teradata entered into an interest rate swap to hedge approximately 90% of the floating interest rate of the total $500 million Term Loan and a cross currency swap to hedge a portion of Euro currency exposure of its net investment in certain foreign subsidiaries.

Current wording

Long-Term Debt. On June 28, 2022, we entered into a Credit Agreement that provides for (i) a five-year unsecured term loan in an aggregate principal amount of $500 million (the "Term Loan"), and (ii) a five-year unsecured revolving credit facility in an aggregate principal amount of up to $400 million, including a $50 million sublimit for the issuance of standby letters of credit and a $50 million sublimit for swingline loans (the "Revolving Facility" and, collectively with the Term Loan, the "Credit Facility"). Our long-term debt is discussed in Note 12 of Notes to Consolidated Financial Statements. In addition, as disclosed in Note 9 of Notes to Consolidated Financial Statements, Teradata entered into an interest rate swap to hedge approximately 90% of the floating interest rate of the total $500 million Term Loan and a cross currency swap to hedge a portion of Euro currency exposure of its net investment in certain foreign subsidiaries.

Previous wording

Transition tax is the remaining payable balance as of December 31, 2023 of the one-time tax on accumulated foreign earnings resulting from the 2017 Tax Act. The payments associated with this deemed repatriation are being paid over seven years ending in 2025. Purchase obligations are committed purchase orders and other contractual commitments for goods and services and include non-cancelable contractual payments for fixed or minimum amounts to be purchased in relation to service agreements with various vendors for ongoing telecommunications, information technology, hosting and other services.

Current wording

Transition tax is the remaining current payable balance recorded on our balance sheet as of December 31, 2024, of the one-time tax on accumulated foreign earnings resulting from the 2017 Tax Act. The payments associated with this deemed repatriation are being paid over seven years ending in 2025. Purchase obligations are committed purchase orders and other contractual commitments for goods and services and include non-cancelable contractual payments for fixed or minimum amounts to be purchased in relation to service agreements with various vendors for ongoing telecommunications, information technology, hosting and other services.

Previous wording

Additionally, we had $40 million of unrecognized tax benefits recorded on our balance sheet as of December 31, 2023, of which $19 million is recorded in non-current liabilities and $21 million is reflected as an offset to deferred tax assets related to certain tax attribute carryforwards. These items are not included in the table of obligations shown above. The settlement period for the non-current income tax liabilities cannot be reasonably estimated as the timing and the amount of the payments, if any, will depend on possible future tax examinations with the various tax authorities.

Current wording

Additionally, we had $44 million of unrecognized tax benefits recorded on our balance sheet as of December 31, 2024, of which $21 million is recorded in non-current liabilities and $23 million is reflected as an offset to deferred tax assets related to certain tax attribute carryforwards. These items are not included in the table of obligations shown above. The settlement period for the non-current income tax liabilities cannot be reasonably estimated as the timing and the amount of the payments, if any, will depend on possible future tax examinations with the various tax authorities.

Previous wording

Effective January 1, 2018, the United States moved to a territorial system of international taxation, and as such will generally not subject future foreign earnings to United States taxation upon repatriation in future years. The Company considers a majority of its foreign earnings not indefinitely reinvested outside of the United States. However, these distributions may be subject to non-U.S. withholding taxes if profits are distributed from certain jurisdictions; accordingly, the Company has recorded $5 million of deferred foreign tax expense with respect to certain earnings that are not considered permanently reinvested. Deferred taxes have not been provided on earnings considered indefinitely reinvested.

Current wording

Effective January 1, 2018, the United States moved to a territorial system of international taxation, and as such will generally not subject future foreign earnings to United States taxation upon repatriation in future years. The Company considers a majority of its foreign earnings not indefinitely reinvested outside of the United States. However, these distributions may be subject to non-U.S. withholding taxes if profits are distributed from certain jurisdictions; accordingly, the Company has recorded $2 million of deferred foreign tax expense with respect to certain earnings that are not considered permanently reinvested. Deferred taxes have not been provided on earnings considered indefinitely reinvested.

Previous wording

We account for uncertainty in income taxes by prescribing thresholds and attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. We may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. We record any interest and/or penalties related to uncertain tax positions in the income tax expense line on our Consolidated Statements of Income. As of December 31, 2023, the Company has a total of $40 million of unrecognized tax benefits, of which $19 million is included in the other liabilities section of the Company’s consolidated balance sheet as a non-current liability and $21 million of uncertain tax positions relates to certain tax attributes generated by the Company which are netted against the underlying deferred tax assets recorded on the balance sheet.

Current wording

We account for uncertainty in income taxes by prescribing thresholds and attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. We may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. We record any interest and/or penalties related to uncertain tax positions in the income tax expense line on our Consolidated Statements of Income. As of December 31, 2024, the Company has a total of $44 million of unrecognized tax benefits, of which $21 million is included in the other liabilities section of the Company’s consolidated balance sheet as a non-current liability and $23 million of uncertain tax positions relates to certain tax attributes generated by the Company which are netted against the underlying deferred tax assets recorded on the balance sheet.

Previous wording

We regularly review our deferred tax assets for recoverability and establish a valuation allowance if it is more likely than not that some portion or all of a deferred tax asset will not be realized. We have recorded $90 million in 2023 and $69 million in 2022 for valuation allowances, $69 million of which offset our California R&D tax credit carryfoward, and $15 million of which relates to our US Foreign Tax Credit Carryforward, as the Company expects to continue to generate excess California R&D & Foreign tax credits into the foreseeable future.

Current wording

We regularly review our deferred tax assets for recoverability and establish a valuation allowance if it is more likely than not that some portion or all of a deferred tax asset will not be realized. We have recorded $101 million in 2024 and $90 million in 2023 for valuation allowances, $65 million of which offset our California R&D tax credit carryfoward, and $19 million of which relates to our US Foreign Tax Credit Carryforward, as the Company expects to continue to generate excess California R&D & Foreign tax credits into the foreseeable future. The remaining $17 million relates to certain of our operating entities with cumulative 3-year net operating losses whereby the future realization of their net deferred tax assets may not be realized.

Previous wording

We measure pension and postemployment benefit costs and credits using actuarial valuations. Actuarial assumptions attempt to anticipate future events and are used in calculating the expense and liability relating to these plans. These factors include assumptions we make about interest rates, expected investment return on plan assets, total and involuntary turnover rates, and rates of future compensation increases. In addition, our actuarial consultants also use subjective factors such as withdrawal rates and mortality rates to develop our valuations. We review and update these assumptions on an annual basis at the beginning of each fiscal year. We are required to consider current market conditions, including changes in interest rates, in making these assumptions. The actuarial assumptions that we use may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates, or longer or shorter life spans of participants. These differences may result in a significant impact to the measurement of our pension and postemployment benefit obligations and to the amount of pension and postemployment benefits expense we have recorded or may record. For example, as of December 31, 2023, a one-half percent increase/decrease in the discount rate would change the projected benefit obligation of our pension plans by approximately $7 million, and a one-half percent increase/decrease in our involuntary turnover assumption would change our postemployment benefit obligation by approximately $5 million.

Current wording

We measure pension and postemployment benefit costs and credits using actuarial valuations. Actuarial assumptions attempt to anticipate future events and are used in calculating the expense and liability relating to these plans. These factors include assumptions we make about interest rates, expected investment return on plan assets, total and involuntary turnover rates, and rates of future compensation increases. In addition, our actuarial consultants also use subjective factors such as withdrawal rates and mortality rates to develop our valuations. We review and update these assumptions on an annual basis at the beginning of each fiscal year. We are required to consider current market conditions, including changes in interest rates, in making these assumptions. The actuarial assumptions that we use may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates, or longer or shorter life spans of participants. These differences may result in a significant impact to the measurement of our pension and postemployment benefit obligations and to the amount of pension and postemployment benefits expense we have recorded or may record. For example, as of December 31, 2024, a one-half percent increase/decrease in the discount rate would change the projected benefit obligation of our pension plans by approximately $6 million, and a one-half percent increase/decrease in our involuntary turnover assumption would change our postemployment benefit obligation by approximately $5 million.