DXP ENTERPRISES INCDXPE

DXP ENTERPRISES INC Income Taxes Disclosure

10-KFiled Feb 26, 20266 min read
INCOME TAXES
The components of income before income taxes are as follows (in thousands):
 Years Ended December 31,
 202520242023
Domestic$110,687 $77,309 $79,785 
Foreign8,535 7,663 7,146 
Total income before taxes$119,222 $84,972 $86,931 
The provision for income taxes consisted of the following (in thousands):
 Years Ended December 31,
 202520242023
Current -   
Federal$(3,254)$22,066 $22,514 
State4,783 5,217 2,620 
Foreign2,194 2,190 2,044 
Total current3,723 29,473 27,178 
Deferred -   
Federal26,306 (13,597)(7,679)
State516 (1,347)(1,133)
Foreign— (46)(247)
Total deferred26,822 (14,990)(9,059)
Total current and deferred taxes$30,545 $14,483 $18,119 

The following table shows the principal reasons for the difference between the effective income tax rate and the statutory federal income tax rate:
Years Ended December 31,
202520242023
Amount Percent Amount Percent Amount Percent
U.S. Federal Statutory Tax Rates $25,034 21.0 %$17,844 21.0 %$18,392 21.2 %
State and local income tax, net of federal (national) income tax effect(1)
4,206 3.5 %3,057 3.6 %1,620 1.9 %
Foreign tax effects
Canada330 0.3 %433 0.5 %280 0.3 %
Mexico 38 — %14 — %17 — %
Other Foreign Jurisdictions 55 — %80 0.1 %— — %
Effect of changes in tax laws or rates enacted in the current period— — %— — %— — %
Effect of cross-border tax laws— — %— — %— — %
Tax credits
Research Tax Credit 1,339 1.1 %(7,333)(8.6)%(4,718)(5.4)%
Foreign Tax Credit — — %— — %— — %
Other Tax Credits(62)(0.1)%(118)(0.1)%(19)— %
Changes in valuation allowances— — %— — %— — %
Nontaxable or nondeductible items
 162(m) compensation 2,583 2.2 %1,281 1.5 %513 0.6 %
Other nondeductible items 1,992 1.7 %(460)(0.5)%847 1.0 %
Restricted Stock (275)(0.2)%(2,056)(2.4)%(3)— %
Earnout — — %— — %1,225 1.4 %
Changes in unrecognized tax benefits.(1,336)(1.1)%1,732 2.0 %(33)(0.2)%
Other Adjustments (3,359)(2.8)%9 (0.1)%(2)— %
Effective Tax Rate $30,545 25.6 %$14,483 17.0 %$18,119 20.8 %
(1). State taxes in California, Pennsylvania, and Tennessee made up the majority (greater than 50 percent) of the tax effects in this category.
Deferred tax liabilities and assets were comprised of the following (in thousands):
December 31,
 20252024
Deferred tax assets: 
Allowance for doubtful accounts$868 $954 
Inventory5,449 3,585 
Federal R&D credit carryforward1,953 — 
Texas R&D credit carryforward2,283 2,232 
Louisiana R&D credit carryforward10 10 
Foreign Tax Credit Carryforward203 64 
Charitable Contribution Carryforward1,225 — 
Net operating loss carryforward15,224 1,258 
Capital loss carryforward4 4 
Deferred Compensation490 2,304 
Accruals10,910 9,814 
Business Interest Expense Carryforward962 — 
ROU Lease Liability 17,389 304 
Section 174 Addback— 40,650 
Total deferred tax assets59,672 63,483 
Less valuation allowance(221)(221)
Total deferred tax asset, net of valuation allowance59,451 63,262 
Deferred tax liabilities:
Goodwill(26,252)(24,847)
Intangibles(6,322)(7,902)
Property and equipment(17,933)(10,204)
ROU Asset(17,007)— 
Unremitted foreign earnings(421)(421)
Method changes(1,088)(393)
Other(802)(243)
Total deferred tax liability$(69,825)$(44,010)
Net deferred tax (liability) asset
$(10,374)$19,252 

The Company records a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets depends on the ability to generate sufficient taxable income of the appropriate character in the future and in the appropriate taxing jurisdictions. If the Company was to determine that it would be able to realize the deferred tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the valuation allowance, which would reduce the provision for income taxes. As of December 31, 2025, the valuation allowance primarily relates to state operating loss and foreign capital loss carryforwards.

The following summarizes changes in the balance of valuation allowances on deferred tax assets (in thousands):

December 31,
  202520242023
Balance at January 1$(221)$(278)$(4)
Changes due to state operating loss and foreign capital loss carryforwards
— 57 (274)
Balance at December 31$(221)$(221)$(278)
Expected tax benefit on carryforwards available for use on future income tax returns, prior to valuation allowance, at December 31, 2025, are as follows (in thousands):

  Domestic  ForeignExpiration
Net operating loss - foreign$— $543 2034-2045
Net operating loss - federal (80%)
13,116 — Indefinite
Net operating loss - state
1,566 — 2035-Indefinite
Capital loss carryforward - foreign— 4 Indefinite
Foreign tax credits203 — 2035
Texas research and development tax credits2,283 — 2038-2045
Louisiana research and development tax credits10 — 2026

Changes in the balance of unrecognized tax benefits excluding interest and penalties on uncertain tax positions are as follows (in thousands):

December 31,
  202520242023
Balance at January 1,$(8,702)$(5,755)$(5,918)
   Decreases related to prior year tax positions2,088 142 1,475 
   Increases related to current year tax positions(8)(3,089)(1,312)
Balance at December 31,$(6,622)$(8,702)$(5,755)

As of December 31, 2025, the Company had recorded a total tax benefit of $34.9 million related to federal and state research and development tax credits. This benefit is partially offset by $6.1 million uncertain tax position due to the uncertainty related to the realizability of the federal research and development tax credits. The Company is also recording a $0.5 million uncertain tax position resulting from a method change for a historical acquisition and non-deductible auto expense compensation. The total amount of these unrecognized tax benefits, if recognized, would impact the effective tax rate.

To the extent penalties and interest would be assessed on any underpayment of income tax, such accrued amounts are classified as a component of income tax provision (benefit) in the consolidated financial statements consistent with the Company's policy. For the year ended December 31, 2025, the Company recorded $0.3 million tax expense for interest and penalties related to uncertain tax positions.

The Company is subject to taxation in the U.S., various states, and foreign jurisdictions. The Company has significant operations in the U.S. and Canada and to a lesser extent in various other international jurisdictions. Tax years that remain subject to examination vary by legal entity but are generally closed in the U.S. for the tax years prior to 2015 and outside the U.S. for the tax years ended prior to 2019. There is a 4-year statute of limitations for Canadian returns based on the date tax assessment is received, not filing date. Tax assessments are typically received within weeks of filing date.

Income taxes paid net of refunds are as follows (in thousands):

Years Ended December 31,
202520242023
Federal$29,620 $11,958 $15,289 
State
     California (1)
567 1,309 21 
     Other States3,784 3,838 3,379 
Foreign
     Canada2,174 1,318 1,617 
     Other Foreign Jurisdictions254 258 257 
Total Income Taxes Paid (net of refunds)$36,399 $18,681 $20,563 
'(1) For 2025 and 2023, California did not exceed the 5% threshold; however, the total has been separately stated for comparability.

Historical Timeline

Fiscal YearFiled
2025Feb 26, 2026Showing above
2024Mar 10, 2025
2023Mar 11, 2024
2022Apr 17, 2023
2021Apr 5, 2022
2020Mar 18, 2021
2019Mar 13, 2020
2018Mar 8, 2019
2017Mar 28, 2018
2016Mar 31, 2017
2015Feb 29, 2016

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.

Other Available Disclosures

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