Emergent BioSolutions Inc.EBS
Emergent BioSolutions Inc. Income Taxes Disclosure
Income taxes
The Company uses the asset/liability method of accounting for income taxes. Under this method, deferred tax assets/liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets/liabilities and their respective tax basis. Deferred tax assets/liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. Valuation allowances are recorded as appropriate to reduce deferred tax assets to the amount considered not more likely than not to be realized.
The Company establishes valuation allowances for deferred income tax assets in accordance with U.S. GAAP, which provides that such valuation allowances shall be established unless realization of the income tax benefits is more likely than not. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.
As of December 31, 2025, the Company reassessed the valuation allowance and considered negative evidence, including its significant losses in the current year and prior years, positive evidence, scheduled reversal of deferred tax liabilities, available taxes in carryback periods, tax planning strategies and projected future taxable income. After assessing both the negative and positive evidence, the Company concluded that it should record a net decrease in valuation allowance of $9.4 million on its global net operating losses, credits and other deferred tax assets.
The global intangible low-tax income (“GILTI”) provisions require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. The Company is subject to incremental U.S. tax on GILTI income. The Company has elected to account for GILTI tax in the period in which it is incurred, and therefore has not provided any deferred tax amounts of GILTI in its consolidated financial statements for the years ended December 31, 2025, 2024 and 2023.
For the year ended December 31, 2025, the Company has re-evaluated its historical indefinite reinvestment assertion and determined it remains appropriate to record a deferred withholding tax liability for only the undistributed earnings of a certain subsidiary. The Company recognized a deferred withholding tax liability for the undistributed earnings of the Company’s international subsidiaries available cash and net working capital in the amount of $3.7 million. All other international subsidiaries’ outside basis differences are indefinitely reinvested.
Significant components of income taxes attributable to operations consist of the following:
Year Ended December 31, | |||||||||||||||||
2025 | 2024 | 2023 | |||||||||||||||
| Income (loss) from continuing operations before income tax expense (benefit): | |||||||||||||||||
| U.S. | $ | (4.7) | $ | (355.5) | $ | (805.1) | |||||||||||
| International | 87.5 | 212.6 | 73.9 | ||||||||||||||
| Income (loss) before income taxes | 82.8 | (142.9) | (731.2) | ||||||||||||||
| Income tax expense (benefit) from continuing operations: | |||||||||||||||||
| Current | |||||||||||||||||
| Federal | $ | — | $ | 4.4 | $ | (0.6) | |||||||||||
| State | 1.4 | 1.4 | 0.5 | ||||||||||||||
| International | 32.7 | 47.4 | 36.7 | ||||||||||||||
| Total current | 34.1 | 53.2 | 36.6 | ||||||||||||||
| Deferred | |||||||||||||||||
| Federal | — | (4.4) | (2.0) | ||||||||||||||
| State | 0.1 | — | (1.2) | ||||||||||||||
| International | (4.0) | (1.1) | (4.1) | ||||||||||||||
| Total deferred | (3.9) | (5.5) | (7.3) | ||||||||||||||
Income tax provision | $ | 30.2 | $ | 47.7 | $ | 29.3 | |||||||||||
The table below presents the Company’s income taxes paid (net of refunds received) disaggregated by federal, state, and foreign jurisdictions:
December 31, | |||||
2025 | |||||
| Income taxes paid (refunded): | |||||
| U.S. Federal | $ | — | |||
| U.S. State | 1.8 | ||||
| Foreign: | |||||
| Canada | 37.4 | ||||
| Other foreign | 0.8 | ||||
| Foreign Subtotal | 38.2 | ||||
| Total cash paid for income taxes (net of refunds) | $ | 40.0 | |||
The Company adopted ASU 2023-09 prospectively; therefore, the current-year effective tax rate reconciliation below is presented in the new required format, while prior-year periods appear under the previous guidance. Income taxes differ from the amount of taxes determined by applying the U.S. federal statutory rate to income before taxes as a result of the following:
Year Ended December 31, 2025 | |||||||||||
Amount | Percent | ||||||||||
| Federal tax at statutory rates | $ | 17.4 | 21.0 | % | |||||||
State taxes, net of federal benefit (1) | 1.2 | 1.5 | % | ||||||||
| Foreign Tax Effects | |||||||||||
| Canada | |||||||||||
| Statutory tax rate difference between Canada and US | 4.3 | 5.2 | % | ||||||||
| Local and Provincial taxes | 2.1 | 2.5 | % | ||||||||
| Changes in valuation allowances | (1.4) | (1.7) | % | ||||||||
| Foreign Withholding Tax | 2.5 | 3.0 | % | ||||||||
| Other | 0.5 | 0.6 | % | ||||||||
| Ireland | |||||||||||
| Statutory tax rate difference between Ireland and US | (3.3) | (4.0) | % | ||||||||
| Effect of Cross Border Tax Laws | 2.6 | 3.2 | % | ||||||||
| Effect of Cross-Border Tax Laws | (3.9) | (4.7) | % | ||||||||
| Changes in Valuation Allowances | 1.6 | 1.9 | % | ||||||||
| Nontaxable or Nondeductible Items | |||||||||||
| Stock Compensation | 1.6 | 1.9 | % | ||||||||
| Impact of Impairment | 1.0 | 1.3 | % | ||||||||
| Compensation limitation | 1.0 | 1.2 | % | ||||||||
| Debt Financing | 3.6 | 4.3 | % | ||||||||
Impact of Divestitures | (1.3) | (1.5) | % | ||||||||
| Other | 0.7 | 0.8 | % | ||||||||
| Effective Tax Rate | $ | 30.2 | 36.5 | % | |||||||
(1) State taxes in California and Maryland made up the majority (greater than 50 percent) of the tax effect in this category. | |||||||||||
Year Ended December 31, | |||||||||||
2024 | 2023 | ||||||||||
| Federal tax at statutory rates | $ | (30.0) | $ | (153.6) | |||||||
| State taxes, net of federal benefit | (28.6) | (52.7) | |||||||||
| Impact of foreign operations | 1.5 | (8.5) | |||||||||
| Change in valuation allowance | 80.2 | 193.6 | |||||||||
| Tax credits | (0.2) | (0.9) | |||||||||
| Pillar Two tax | 6.8 | — | |||||||||
| Stock compensation | 4.1 | 6.8 | |||||||||
| Goodwill Impairments | — | 23.3 | |||||||||
| Adjustment of prior year taxes | 0.4 | 1.3 | |||||||||
| Compensation limitation | 1.7 | 0.3 | |||||||||
| Unrecognized tax benefit | (3.5) | (0.6) | |||||||||
| Impact of divestitures | (3.9) | 1.0 | |||||||||
| GILTI, net | 15.8 | 17.8 | |||||||||
| Foreign withholding tax | 3.5 | 0.8 | |||||||||
| Permanent differences | (0.1) | 0.7 | |||||||||
| Income tax provision | $ | 47.7 | $ | 29.3 | |||||||
The effective annual tax rate for the years ended December 31, 2025, 2024, and 2023 was 36%, (33)% and (4)%, respectively.
The effective annual tax rate of 36% in 2025 is significantly different than the statutory rate primarily due to the impact of valuation allowance charge in the U.S., jurisdictional mix of income, and other permanent differences.
The effective annual tax rate of (33)% in 2024 is significantly different than the statutory rate primarily due to the impact of reduced U.S. losses, valuation allowance charge in the U.S., jurisdictional mix of income, GILTI, and other permanent differences.
The effective annual tax rate of (4)% in 2023 is significantly different than the statutory rate primarily due to the impact of a valuation allowance charge in the U.S., state and certain Foreign Jurisdictions, goodwill impairment, GILTI, and other permanent items. This is partially offset by tax credits and favorable rates in foreign jurisdictions.
The total unrecognized tax benefits recorded at December 31, 2025 and 2024 of $1.4 million and $1.7 million, respectively, is classified primarily as a non-current liability on the Consolidated Balance Sheets.
The table below presents the gross unrecognized tax benefits activity for the years ended December 31, 2025, 2024 and 2023:
Year Ended December 31, | |||||||||||||||||
2025 | 2024 | 2023 | |||||||||||||||
| Gross unrecognized tax benefits, beginning of period | $ | 1.7 | $ | 6.6 | $ | 6.8 | |||||||||||
| Increases (decreases) for tax positions for prior years | — | — | 0.4 | ||||||||||||||
| Increases for tax positions for current year | — | — | 0.1 | ||||||||||||||
| Settlements | — | (2.3) | — | ||||||||||||||
| Lapse of statute of limitations | (0.3) | (2.6) | (0.7) | ||||||||||||||
| Gross unrecognized tax benefits, end of period | $ | 1.4 | $ | 1.7 | $ | 6.6 | |||||||||||
The current year change includes the reversal of a $0.3 million liability due to a lapse of the statute of limitations during the year.
The Company includes interest and potential penalties related to unrecognized tax benefits in income tax expense. As of December 31, 2025 and 2024, the total amount of interest and penalties accrued was $0.8 million and $0.8 million, respectively. The Company recognized interest and penalty expense (benefit) in 2025, 2024 and 2023 of $0.0 million, $(0.8) million and $0.2 million, respectively.
The Company does not anticipate a significant change within the next twelve months for unrecognized tax benefits and when resolved, all of these liabilities would impact the effective tax rate. However, the Company maintains a full valuation allowance as of December 31, 2025 and the recognition of any unrecognized tax benefits would be offset with a change in the valuation allowance and therefore there would be no income statement impact.
The Company's federal and state income tax returns for the tax years 2022 and onwards remain open to examination. The Company's tax returns for Canada remain open to examination for the tax years 2017 and onward. The Company's Irish tax returns remain open to examination for the tax years 2019 and onward.
As of December 31, 2025, the Company’s 2018 and 2020 Canadian Scientific Research and Experimental Development Claims are subject to proceedings with the Tax Court of Canada and the Company's 2021 Canadian Scientific Research and Experimental Development Claim is under audit. In addition, the Company’s 2021-2023 Texas Franchise tax returns are under audit.
The Company's net deferred tax liability consists of the following:
December 31, | |||||||||||
2025 | 2024 | ||||||||||
| Deferred tax assets | |||||||||||
| Federal losses carryforward | $ | 114.9 | $ | 108.7 | |||||||
| State losses carryforward | 62.7 | 67.1 | |||||||||
| R&D carryforward | 22.8 | 22.6 | |||||||||
| Stock compensation | 5.5 | 4.6 | |||||||||
| Foreign losses carryforward | 14.7 | 14.4 | |||||||||
| Inventory reserves | 11.0 | 10.1 | |||||||||
| Lease liability | 2.7 | 3.3 | |||||||||
| IRC 263A capitalized costs | 1.9 | 1.3 | |||||||||
| Capitalized R&D | 34.9 | 38.2 | |||||||||
| IRC 163(j) Interest Limitation | 50.2 | 44.6 | |||||||||
| Fixed assets | 0.4 | 14.2 | |||||||||
| Intangible assets | 14.7 | 13.4 | |||||||||
| Charitable Contributions | 1.9 | 1.3 | |||||||||
| Reserves | 2.7 | 0.9 | |||||||||
| Other | 2.0 | 1.5 | |||||||||
| Gross deferred tax assets | 343.0 | 346.2 | |||||||||
| Valuation allowance | (329.6) | (339.0) | |||||||||
| Total deferred tax assets | 13.4 | 7.2 | |||||||||
| Deferred tax liabilities | |||||||||||
| Fixed assets | (5.5) | (1.8) | |||||||||
| Intangible assets | (34.5) | (38.1) | |||||||||
| Right-of-use asset | (2.5) | (3.1) | |||||||||
| Foreign Withholding Tax | (3.7) | (1.2) | |||||||||
| Prepaid expenses | (3.4) | (4.1) | |||||||||
| Other | (1.6) | (0.6) | |||||||||
| Total deferred tax liabilities | (51.2) | (48.9) | |||||||||
| Net deferred tax liabilities | $ | (37.8) | $ | (41.7) | |||||||
As of December 31, 2025, the Company has approximately $547.2 million in U.S. federal net operating loss ("NOL") carryforwards, $36.0 million of NOL’s which will expire in varying amounts in 2031 through 2035 and $511.2 million which will carryforward indefinitely, although, limited to eighty percent of taxable income annually. The Company has U.S. federal R&D tax credit carryforwards of $17.8 million which will expire in 2027 through 2042.
As of December 31, 2025, the Company had post-apportionment state NOLs totaling approximately $1.1 billion that will begin to expire in 2028. The Company has state R&D tax credit carryforwards of $5.0 million which will expire in 2027 through 2038.
The deductibility of such U.S. federal and state net operating losses and credits may be limited. Under Section 382/383 of the Internal Revenue Code of 1986, as amended (the “Code”), and corresponding provisions of state law, if a corporation undergoes an "ownership change," which generally occurs if the percentage of the corporation's stock owned by 5% stockholders increases by more than 50% over a three-year period, the corporation's ability to use its pre-change NOL carryforwards and other pre-change tax attributes to offset its post-change income may be limited. Certain of the net operating loss carryforwards and the credit carryforwards are subject to an annual limitation pursuant to Code Section 382 and 383 as a result of historical acquisitions. We may experience ownership changes in the future as a result of subsequent shifts in our stock ownership, some of which may be outside of our control, which may further limit our carryforwards. If we determine that an ownership change has occurred and our ability to use our historical NOL and credit carryforwards is materially limited, it would harm our future operating results by effectively increasing our future tax obligations.
The Company has approximately $58.7 million in net operating losses from foreign jurisdictions as of December 31, 2025, which will carryforward indefinitely.
The Company’s valuation allowance decreased by $9.4 million due to the Company’s release of Canadian valuation allowance and generation of significantly lower losses in 2025.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 27, 2026 | Showing above |
| 2024 | Mar 4, 2025 | |
| 2023 | Mar 8, 2024 | |
| 2022 | Mar 1, 2023 | |
| 2021 | Feb 25, 2022 | |
| 2020 | Feb 19, 2021 | |
| 2019 | Feb 25, 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.