EXELIXIS, INC.EXEL
EXELIXIS, INC. Income Taxes Disclosure
PROVISION FOR INCOME TAXES
Our income before income taxes is derived solely from within the U.S. Our provision for income taxes was as follows (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | 16,230 | $ | 201,890 | $ | 167,954 | |||||||||||
| State | 16,169 | 17,941 | 15,011 | ||||||||||||||
| Total current tax expense | $ | 32,399 | $ | 219,831 | $ | 182,965 | |||||||||||
| Deferred: | |||||||||||||||||
| Federal | $ | 128,463 | $ | (52,433) | $ | (123,486) | |||||||||||
| State | (2,226) | (7,025) | (9,723) | ||||||||||||||
| Total deferred tax expense | 126,237 | (59,458) | (133,209) | ||||||||||||||
| Provision for income taxes | $ | 158,636 | $ | 160,373 | $ | 49,756 | |||||||||||
The reconciliation of the U.S. federal income tax provision at the statutory federal income tax rate of 21% for the year ended December 31, 2025, to our provision for income taxes was as follows (dollars in thousands):
The table reflects the ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (ASU 2023-09), which was adopted prospectively for the year ended December 31, 2025. See “Note 1. Organization and Summary of Significant Accounting Policies — Recently Adopted Accounting Pronouncements” for additional information on the adoption of ASU 2023-09.
| Year Ended December 31, | |||||||||||
| 2025 | |||||||||||
| Amount | Percent | ||||||||||
| U.S. federal statutory tax rate | $ | 197,653 | 21.0 | % | |||||||
| State and local income taxes, net of federal income tax effect | 11,015 | 1.2 | % | ||||||||
| Effects of cross-border tax laws: | |||||||||||
| Foreign-derived intangible income | (28,011) | -3.0 | % | ||||||||
| Tax credits: | |||||||||||
| Research and development tax credits | (23,941) | -2.5 | % | ||||||||
| Nontaxable or nondeductible items: | |||||||||||
| Non-deductible executive compensation | 14,220 | 1.5 | % | ||||||||
| Branded prescription drug fee | 5,100 | 0.5 | % | ||||||||
| Stock-based compensation | (23,029) | -2.4 | % | ||||||||
| Changes in unrecognized tax benefits | 3,933 | 0.4 | % | ||||||||
| Other | 1,696 | 0.2 | % | ||||||||
| Provision for income taxes and effective income tax rate | $ | 158,636 | 16.9 | % | |||||||
The states that contribute to the majority (greater than 50%) of the tax effect in the state and local income taxes, net of federal income tax effect category include Kentucky, Illinois and New Jersey for 2025.
The reconciliation of the U.S. federal income tax provision at the statutory federal income tax rate of 21% for each of the years ended December 31, 2024 and 2023, respectively, to our provision for income taxes, as previously disclosed, prior to the adoption of ASU 2023-09, were as follows (in thousands):
| Year Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
U.S. federal statutory tax rate | $ | 143,144 | $ | 54,080 | |||||||
State and local income taxes, net of federal income tax effect | 12,240 | (1,487) | |||||||||
Research and development tax credits | (10,997) | (23,714) | |||||||||
| Non-deductible executive compensation | 7,094 | 7,019 | |||||||||
| Branded prescription drug fee | 4,633 | 4,968 | |||||||||
| Stock-based compensation | 665 | 1,066 | |||||||||
Change in valuation allowance | (3,617) | 5,770 | |||||||||
| Other | 7,211 | 2,054 | |||||||||
| Provision for income taxes | $ | 160,373 | $ | 49,756 | |||||||
The amounts of income taxes paid, net of refunds received, for the year ended December 31, 2025, were as follows (in thousands):
Amount | |||||
| Federal | $ | 135,555 | |||
| State | |||||
Kentucky | 10,633 | ||||
All other states | 9,108 | ||||
| Total net cash paid for income taxes | $ | 155,296 | |||
There were no other individual jurisdictions with cash taxes paid that equaled or exceeded 5% of total income taxes paid in 2025.
Deferred tax assets and liabilities reflect the net tax effects of net operating loss and tax credit carryforwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting and the amounts used for income tax purposes.
Our deferred tax assets and liabilities were as follows (in thousands):
December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred tax assets: | |||||||||||
| Net operating loss and capital loss carryforwards | $ | 39,911 | $ | 39,877 | |||||||
| Tax credit carryforwards | 39,700 | 39,572 | |||||||||
| Depreciation and amortization | 228,863 | 349,058 | |||||||||
| Stock-based compensation | 20,243 | 17,791 | |||||||||
| Lease liabilities | 46,092 | 49,137 | |||||||||
| Accruals and reserves not currently deductible | 35,919 | 40,858 | |||||||||
| Other assets | 7,141 | 9,049 | |||||||||
| Total deferred tax assets | 417,869 | 545,342 | |||||||||
| Valuation allowance | (87,678) | (86,029) | |||||||||
| Net deferred tax assets | 330,191 | 459,313 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Lease right-of-use assets | (36,483) | (39,286) | |||||||||
| Other liabilities | (1,126) | — | |||||||||
| Total deferred tax liabilities | (37,609) | (39,286) | |||||||||
| Net deferred taxes | $ | 292,582 | $ | 420,027 | |||||||
As of December 31, 2025 and 2024, we continue to carry a valuation allowance of $87.7 million and $86.0 million, respectively, against our California state deferred tax assets and federal and state capital loss carryforwards. The valuation allowance increased by $1.6 million and $3.0 million during the years ended December 31, 2025 and 2024, respectively.
At December 31, 2025, we had state net operating loss carryforwards of approximately $407.2 million, which expire in the years 2028 through 2039, and California research and development tax credits of approximately $56.9 million, which do not expire.
Under the Internal Revenue Code and similar state provisions, certain substantial changes in our ownership could result in an annual limitation on the amount of net operating loss and credit carryforwards that can be utilized in future years to offset future taxable income. The annual limitation may result in the expiration of net operating losses and credit carryforwards before utilization. We completed a Section 382 analysis through December 31, 2025, and concluded that an ownership change, as defined under Section 382, had not occurred.
The following table summarizes the activity related to our unrecognized tax benefits (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Beginning balance | $ | 127,500 | $ | 115,766 | $ | 87,706 | |||||||||||
| Change relating to prior year provision | (11,510) | (1,994) | 631 | ||||||||||||||
| Change relating to current year provision | 7,534 | 13,796 | 32,137 | ||||||||||||||
| Reductions based on the lapse of the applicable statutes of limitations | (11,629) | (68) | (4,708) | ||||||||||||||
| Ending balance | $ | 111,895 | $ | 127,500 | $ | 115,766 | |||||||||||
As of December 31, 2025, we had $111.9 million in unrecognized tax benefits, of which $54.9 million would reduce our income tax provision and effective tax rate, if recognized. We have elected to record interest and penalties in the accompanying Consolidated Statements of Income as a component of provision for income taxes. In the year ended December 31, 2025, the total amount of gross interest and penalties accrued was $15.1 million. In the year ended December 31, 2024, the total amount of gross interest and penalties accrued was $8.1 million. In the year ended December 31, 2023, interest and penalties were nominal. Both the unrecognized tax benefits and the associated interest and penalties
are not expected to result in payment or receipt of cash within one year and are therefore classified as other non-current liabilities in the Consolidated Balance Sheets.
We file U.S. and state income tax returns in jurisdictions with varying statues of limitations during which such tax returns may be audited and adjusted by the relevant tax authorities. The tax years 2006 and onwards generally remain subject to examination by federal and most state tax authorities to the extent net operating losses and credits generated during these periods are being utilized in the open tax periods.
The One Big Beautiful Bill Act (OBBBA) was signed into law on July 4, 2025, which, among other provisions, permanently repeals the requirement to capitalize domestic R&E expenditures for federal income tax purposes for taxable years beginning after December 31, 2024, and allows for the accelerated deduction of any remaining unamortized domestic R&E expenditures. Foreign R&E expenditures are still required to be capitalized and amortized ratably over 15 years. The impact of the OBBBA must be recognized in the period of enactment under ASC 740, Income Taxes. The impact of this OBBBA provision has resulted in a $191.0 million reduction of our federal deferred tax assets at the end of the fiscal year 2025. The other provisions of the OBBBA had minimal impact to our federal income tax provision and federal deferred tax assets.
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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.