EXPONENT INC Income Taxes Disclosure
Note 7: Income Taxes
Income before income taxes for 2025, 2024 and 2023 consisted of the following:
|
|
Fiscal Years |
|
|||||||||
(In thousands) |
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Domestic |
|
$ |
137,082 |
|
|
$ |
134,235 |
|
|
$ |
125,543 |
|
Foreign |
|
|
10,215 |
|
|
|
13,135 |
|
|
|
10,353 |
|
Income before income taxes |
|
$ |
147,297 |
|
|
$ |
147,370 |
|
|
$ |
135,896 |
|
Total income tax expense for 2025, 2024 and 2023 consisted of the following:
|
|
Fiscal Years |
|
|||||||||
(In thousands) |
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Current |
|
|
|
|
|
|
|
|
|
|||
Federal |
|
$ |
36,471 |
|
|
$ |
28,237 |
|
|
$ |
23,193 |
|
Foreign |
|
|
2,245 |
|
|
|
3,041 |
|
|
|
2,254 |
|
State |
|
|
12,520 |
|
|
|
10,393 |
|
|
|
10,025 |
|
|
|
|
51,236 |
|
|
|
41,671 |
|
|
|
35,472 |
|
Deferred |
|
|
|
|
|
|
|
|
|
|||
Federal |
|
|
(7,635 |
) |
|
|
(2,665 |
) |
|
|
(775 |
) |
State |
|
|
(2,313 |
) |
|
|
(638 |
) |
|
|
860 |
|
|
|
|
(9,948 |
) |
|
|
(3,303 |
) |
|
|
85 |
|
Total |
|
$ |
41,288 |
|
|
$ |
38,368 |
|
|
$ |
35,557 |
|
The Company's effective tax rate differs from the statutory federal tax rate of 21% as shown in the following schedule for the year ended January 2, 2026:
(In thousands, except for percentages) |
|
Amount |
|
|
Percent |
|
||
U.S. federal statutory tax rate |
|
$ |
30,932 |
|
|
|
21.0 |
% |
State and local taxes, net of federal income tax effect |
|
|
8,096 |
|
|
|
5.5 |
% |
Foreign tax effects |
|
|
(224 |
) |
|
|
-0.2 |
% |
Nontaxable or nondeductible items |
|
|
|
|
|
|
||
Officer compensation |
|
|
1,016 |
|
|
|
0.7 |
% |
Other |
|
|
601 |
|
|
|
0.4 |
% |
Shortfall from equity incentive plans |
|
|
205 |
|
|
|
0.1 |
% |
Changes in unrecognized tax benefits |
|
|
631 |
|
|
|
0.5 |
% |
Others |
|
|
31 |
|
|
|
— |
|
Total |
|
$ |
41,288 |
|
|
|
28.0 |
% |
For the year ended January 2, 2026, state and local income taxes in California and Massachusetts comprise the majority of the state and local income taxes, net of federal income tax effect category.
The Company's effective tax rate differs from the statutory federal tax rate of 21% as shown in the following schedule for the years ended January 3, 2025 and December 29, 2023:
|
|
Fiscal Years |
|
|||||
(In thousands) |
|
2024 |
|
|
2023 |
|
||
Tax at federal statutory rate |
|
$ |
30,948 |
|
|
$ |
28,538 |
|
State taxes, net of federal benefit |
|
|
7,699 |
|
|
|
8,587 |
|
Non-deductible officer compensation |
|
|
1,787 |
|
|
|
870 |
|
Non-deductible expenses |
|
|
427 |
|
|
|
456 |
|
Non-deductible stock-based compensation |
|
|
14 |
|
|
|
12 |
|
Excess tax benefit from equity incentive plans |
|
|
(2,239 |
) |
|
|
(2,844 |
) |
Difference between statutory rate and foreign effective tax rate |
|
|
(194 |
) |
|
|
(264 |
) |
Other |
|
|
(74 |
) |
|
|
202 |
|
Tax expense |
|
$ |
38,368 |
|
|
$ |
35,557 |
|
|
|
|
|
|
|
|
||
Effective tax rate |
|
|
26.0 |
% |
|
|
26.2 |
% |
Cash paid for income taxes, net of refunds, during the year ended January 2, 2026 was as follows:
(In thousands) |
|
|
|
|
Federal |
|
$ |
34,634 |
|
Foreign |
|
|
1,989 |
|
State |
|
|
|
|
California |
|
|
5,681 |
|
Massachusetts |
|
|
971 |
|
Others |
|
|
4,720 |
|
Total cash paid for income taxes, net of refunds |
|
$ |
47,995 |
|
Cash paid for income taxes, net of refunds, during the years ended January 3, 2025 and December 29, 2023 was $39,723,000 and $38,944,000, respectively.
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at January 2, 2026 and January 3, 2025 are presented in the following schedule:
|
|
Fiscal Years |
|
|||||
(In thousands) |
|
2025 |
|
|
2024 |
|
||
Deferred tax assets: |
|
|
|
|
|
|
||
Accrued liabilities and allowances |
|
$ |
26,126 |
|
|
$ |
22,831 |
|
Deferred compensation plan |
|
|
48,968 |
|
|
|
43,222 |
|
Operating leases |
|
|
23,077 |
|
|
|
22,782 |
|
Total deferred tax assets |
|
$ |
98,171 |
|
|
$ |
88,835 |
|
|
|
|
|
|
|
|
||
Deferred tax liabilities: |
|
|
|
|
|
|
||
State taxes |
|
$ |
(2,548 |
) |
|
$ |
(2,310 |
) |
Deductible goodwill |
|
|
(2,057 |
) |
|
|
(2,065 |
) |
Operating leases |
|
|
(23,077 |
) |
|
|
(22,782 |
) |
Unrealized gain of deferred compensation plan assets |
|
|
(2,670 |
) |
|
|
(3,319 |
) |
Property, equipment and leasehold improvements |
|
|
(744 |
) |
|
|
(1,232 |
) |
Total deferred tax liabilities |
|
|
(31,096 |
) |
|
|
(31,708 |
) |
Net deferred tax assets |
|
$ |
67,075 |
|
|
$ |
57,127 |
|
Management believes it is more likely than not that the results of future operations will generate sufficient taxable income to realize the net deferred tax assets.
The Company is entitled to a deduction for federal and state tax purposes with respect to employees’ stock award activity. The net reduction in taxes otherwise payable arising from that deduction has been recorded as an income tax benefit. For 2025, the Company realized a negative tax impact associated with stock-based awards of $254,000 as compared to positive tax benefits of $2,793,000 and $3,620,000 for 2024 and 2023, respectively.
The Company and its subsidiaries file income tax returns in the United States federal jurisdiction, California and various other state and foreign jurisdictions. The Company is no longer subject to United States federal income tax examination for years prior to 2022. The Company is no longer subject to California franchise tax examinations for years prior to 2021. With few exceptions, the Company is no longer subject to state and local or non-United States income tax examination by tax authorities for years prior to 2021.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
(In thousands) |
|
|
|
|
Balance at December 29, 2023 |
|
$ |
2,145 |
|
Additions based on tax positions related to the current year |
|
|
651 |
|
Reductions due to lapse of statute of limitations |
|
|
(369 |
) |
Balance at January 3, 2025 |
|
$ |
2,427 |
|
Additions based on tax positions related to the current year |
|
|
1,050 |
|
Reductions due to lapse of statute of limitations |
|
|
(419 |
) |
Balance at January 2, 2026 |
|
$ |
3,058 |
|
Unrecognized tax benefits are included in other liabilities in the accompanying consolidated balance sheets. To the extent these unrecognized tax benefits are ultimately recognized, they will impact the effective tax rate by $2,416,000 in a future period.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2026 | Feb 27, 2026 | Showing above |
| 2025 | Feb 28, 2025 | |
| 2023 | Feb 23, 2024 | |
| 2022 | Feb 24, 2023 | |
| 2021 | Feb 25, 2022 | |
| 2020 | Feb 28, 2020 | |
| 2018 | Feb 22, 2019 | |
| 2017 | Feb 23, 2018 | |
| 2016 | Feb 24, 2017 | |
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.