MKS INC Income Taxes Disclosure
The components of income (loss) before income taxes and the related provision (benefit) for income taxes consist of the following:
|
|
Years Ended December 31, |
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Income (loss) before income taxes: |
|
|
|
|
|
|
|
|
|
|||
United States |
|
$ |
77 |
|
|
$ |
(57 |
) |
|
$ |
(760 |
) |
Foreign |
|
|
227 |
|
|
|
237 |
|
|
|
(1,168 |
) |
|
|
$ |
304 |
|
|
$ |
180 |
|
|
$ |
(1,928 |
) |
Current provision (benefit) for income taxes: |
|
|
|
|
|
|
|
|
|
|||
Federal |
|
$ |
101 |
|
|
$ |
91 |
|
|
$ |
21 |
|
State |
|
|
(11 |
) |
|
|
13 |
|
|
|
6 |
|
Foreign |
|
|
115 |
|
|
|
112 |
|
|
|
120 |
|
|
|
|
205 |
|
|
|
216 |
|
|
|
147 |
|
Deferred provision (benefit) for income taxes: |
|
|
|
|
|
|
|
|
|
|||
Federal |
|
|
(92 |
) |
|
|
(106 |
) |
|
|
(130 |
) |
State |
|
|
17 |
|
|
|
(20 |
) |
|
|
(18 |
) |
Foreign |
|
|
(121 |
) |
|
|
(100 |
) |
|
|
(86 |
) |
|
|
|
(196 |
) |
|
|
(226 |
) |
|
|
(234 |
) |
Provision (benefit) for income taxes |
|
$ |
9 |
|
|
$ |
(10 |
) |
|
$ |
(87 |
) |
The following table is a reconciliation of the Company’s effective tax rate to the U.S. federal statutory income tax rate for the year ended December 31, 2025 in accordance with the guidance in ASU 2023-09:
|
|
Amount |
|
Rate |
|
||
U.S. federal statutory income tax rate |
|
$ |
64 |
|
|
21.0 |
% |
State and local income taxes, net of federal income tax effect(1) |
|
|
(4 |
) |
|
(1.2 |
) |
Foreign tax effects |
|
|
|
|
|
||
China |
|
|
|
|
|
||
Intercompany royalty |
|
10 |
|
|
3.2 |
|
|
Withholding taxes |
|
25 |
|
|
8.4 |
|
|
Audit settlement related to intercompany transactions |
|
25 |
|
|
8.3 |
|
|
Other |
|
|
1 |
|
|
0.2 |
|
Germany |
|
|
|
|
|
||
Effect of changes in tax laws or rates enacted in the current period |
|
|
(4 |
) |
|
(1.2 |
) |
Other |
|
|
(3 |
) |
|
(0.8 |
) |
Hong Kong |
|
|
|
|
|
||
Other |
|
|
(4 |
) |
|
(1.3 |
) |
Israel |
|
|
|
|
|
||
Statutory tax rate difference between Israel and United States |
|
|
(9 |
) |
|
(3.1 |
) |
Other |
|
|
1 |
|
|
0.4 |
|
South Korea |
|
|
|
|
|
||
Withholding taxes |
|
|
8 |
|
|
2.5 |
|
Other |
|
|
— |
|
|
0.1 |
|
Netherlands |
|
|
|
|
|
||
Changes in valuation allowances |
|
|
(73 |
) |
|
(23.9 |
) |
Realized foreign exchange gain (loss) |
|
|
10 |
|
|
3.2 |
|
Other |
|
|
8 |
|
|
2.5 |
|
Taiwan |
|
|
|
|
|
||
Withholding taxes |
|
|
13 |
|
|
4.4 |
|
Other foreign jurisdictions |
|
|
12 |
|
|
3.9 |
|
Effect of cross-border tax laws |
|
|
|
|
|
||
Base erosion and anti-abuse tax related waiver of deductions |
|
|
12 |
|
|
3.8 |
|
Foreign-derived intangible income |
|
|
(44 |
) |
|
(14.6 |
) |
Subpart F, net of foreign tax credits |
|
|
8 |
|
|
2.5 |
|
Other |
|
|
(1 |
) |
|
(0.2 |
) |
Tax credits |
|
|
|
|
|
||
Research and development tax credits |
|
|
(16 |
) |
|
(5.2 |
) |
Foreign tax credit related to withholding taxes |
|
|
(43 |
) |
|
(14.3 |
) |
Nontaxable or nondeductible items |
|
|
|
|
|
||
Stock-based compensation |
|
|
6 |
|
|
2.0 |
|
Other |
|
|
1 |
|
|
0.2 |
|
Changes in unrecognized tax benefits |
|
|
10 |
|
|
3.1 |
|
Other adjustments |
|
|
|
|
|
||
Other |
|
|
(4 |
) |
|
(1.0 |
) |
Effective tax rate |
|
$ |
9 |
|
|
2.9 |
% |
The Company adopted ASU 2023-09 on a prospective basis effective January 1, 2025. Prior period information has not been restated and is presented under the disclosure requirements in effect during those periods.
The following table is a reconciliation of the Company’s effective tax rate to the U.S. federal statutory income tax rate for the years ended December 31, 2024 and December 31, 2023 in accordance with the guidance prior to the adoption of ASU 2023-09:
|
|
Years Ended December 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
U.S. federal statutory income tax rate |
|
|
21.0 |
% |
|
|
21.0 |
% |
Foreign-derived intangible income |
|
|
(24.9 |
) |
|
|
0.6 |
|
Changes in valuation allowances |
|
|
(22.7 |
) |
|
|
0.1 |
|
Withholding taxes, net of foreign tax credits |
|
|
15.4 |
|
|
|
(0.4 |
) |
Federal tax credits |
|
|
(11.7 |
) |
|
|
1.5 |
|
Effect of foreign operations taxed at various rates |
|
|
(8.9 |
) |
|
|
0.9 |
|
Change in income tax reserves (including interest) |
|
|
6.7 |
|
|
|
(0.5 |
) |
Base erosion waiver of deductions |
|
|
5.6 |
|
|
|
— |
|
State income taxes, net of federal benefit |
|
|
(3.0 |
) |
|
|
0.5 |
|
Executive compensation |
|
|
1.8 |
|
|
|
(0.1 |
) |
Foreign subpart F income taxed in the U.S., net of foreign tax credits |
|
|
1.6 |
|
|
|
— |
|
Global intangible low taxed income, net of foreign tax credits |
|
|
1.0 |
|
|
|
0.2 |
|
Goodwill impairment |
|
|
— |
|
|
|
(18.4 |
) |
Other |
|
|
12.4 |
|
|
|
(0.9 |
) |
Effective tax rate |
|
|
(5.7 |
)% |
|
|
4.5 |
% |
The significant components of the deferred tax assets and deferred tax liabilities are as follows:
|
|
December 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Deferred tax assets: |
|
|
|
|
|
|
||
Interest expense carryforwards |
|
$ |
155 |
|
|
$ |
178 |
|
Net operating loss carryforwards |
|
|
68 |
|
|
|
71 |
|
Tax credit carryforwards |
|
|
33 |
|
|
|
34 |
|
Capitalized research and development |
|
|
188 |
|
|
|
146 |
|
Lease liability |
|
|
52 |
|
|
|
49 |
|
Depreciation and amortization |
|
|
22 |
|
|
|
— |
|
Inventory and warranty reserves |
|
|
53 |
|
|
|
48 |
|
Accrued expenses and other reserves |
|
|
39 |
|
|
|
30 |
|
Other |
|
|
13 |
|
|
|
9 |
|
Total deferred tax assets |
|
|
623 |
|
|
|
565 |
|
Valuation allowance |
|
|
(79 |
) |
|
|
(151 |
) |
Net deferred tax assets |
|
$ |
544 |
|
|
$ |
414 |
|
|
|
|
|
|
|
|
||
Deferred tax liabilities: |
|
|
|
|
|
|
||
Acquired intangible assets and goodwill |
|
$ |
(519 |
) |
|
$ |
(558 |
) |
Right-of-use asset |
|
|
(50 |
) |
|
|
(48 |
) |
Foreign withholding taxes |
|
|
(37 |
) |
|
|
(40 |
) |
Loan costs |
|
|
(3 |
) |
|
|
(9 |
) |
Depreciation and amortization |
|
|
— |
|
|
|
(4 |
) |
Total deferred tax liabilities |
|
|
(609 |
) |
|
|
(659 |
) |
Net deferred tax liabilities |
|
$ |
(65 |
) |
|
$ |
(245 |
) |
On a quarterly basis, the Company evaluates both positive and negative evidence that affects the realizability of its net deferred tax assets and assesses the need for a valuation allowance. The future benefit to be derived from its deferred tax assets is dependent upon its ability to generate sufficient future taxable income to realize the assets.
During 2025, the Company decreased its valuation allowance by $72, primarily related to certain foreign interest and net operating loss carryforwards. During 2024, the Company decreased its valuation allowance by $39, primarily related to certain foreign interest and net operating loss carryforwards.
Deferred taxes have been recorded related to historical outside basis differences, primarily unremitted earnings, of certain of the Company’s foreign subsidiaries. During 2025, the Company recorded a tax benefit of $4 related to such taxes.
As of December 31, 2025, the Company had U.S. federal and state as well as foreign gross research and other tax credit carryforwards of $29, $40 and $0, respectively, which are presented gross of unrecognized tax benefits. Included in the total tax credit carryforwards as of December 31, 2025 are $1 of federal and $16 of state tax credits that can be carried forward indefinitely while the remaining tax credits expire at various dates through 2040.
As of December 31, 2025, the Company also had U.S. federal and state as well as foreign net operating loss and capital loss carryforwards of $2, $3 and $263, respectively. Included in the total loss carryforwards are $2, $0 and $263 of losses from federal, state and foreign that can be carried forward indefinitely while the remaining losses expire at various dates through .
The Company had $280 and $377 of U.S. federal and foreign interest carryforwards, respectively, that can be carried forward indefinitely.
Although the Company believes that its tax positions are consistent with applicable U.S. federal, state and international laws, it maintains certain income tax reserves as of December 31, 2025 in the event its tax positions were to be challenged by the applicable tax authority and additional tax assessed upon audit.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits, excluding interest and penalties, is as follows:
|
|
Years Ended December 31, |
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Balance at beginning of year |
|
$ |
94 |
|
|
$ |
86 |
|
|
$ |
83 |
|
(Decreases) increases for tax positions taken during prior years |
|
|
— |
|
|
|
(4 |
) |
|
|
(5 |
) |
Increases for tax positions taken during the current year |
|
|
34 |
|
|
|
36 |
|
|
|
12 |
|
Reductions related to expiration of statutes of limitations and audit settlements |
|
|
(33 |
) |
|
|
(24 |
) |
|
|
(4 |
) |
Balance at end of year |
|
$ |
95 |
|
|
$ |
94 |
|
|
$ |
86 |
|
The net increase in gross unrecognized tax benefits in 2025 was primarily due to the addition of income tax reserves related to intercompany transactions offset by a decrease related to audit settlements.
The Company accrues interest and, if applicable, penalties for any uncertain tax positions. Interest and penalties are classified as a component of income tax provision (benefit). As of December 31, 2025, 2024 and 2023, the Company accrued interest on unrecognized tax benefits of approximately $10, $8 and $7, respectively.
The Company is subject to examination by U.S. federal and state as well as foreign tax authorities. The U.S. federal statute of limitations remains open for tax years 2020 through the present. The Company is under U.S. federal audit by the Internal Revenue Service for the years ended December 31, 2020, 2021 and 2022, and does not expect and is not aware of any unrecorded material adjustments. The statute of limitations for the Company’s tax filings in other jurisdictions varies between fiscal years 2020 through present. The Company also has certain prior year federal credit carryforwards and state tax loss and credit carryforwards that are subject to examination to the extent used in an open year.
The components of cash paid (net of refunds received) for income taxes as of December 31, 2025 are as follows:
|
|
Amount |
|
|
Federal taxes |
|
|
|
|
United States |
|
$ |
(4 |
) |
State taxes |
|
|
|
|
Other state jurisdictions |
|
|
7 |
|
Foreign taxes |
|
|
|
|
Canada |
|
|
11 |
|
China |
|
|
84 |
|
Germany |
|
|
12 |
|
South Korea |
|
|
13 |
|
Netherlands |
|
|
11 |
|
Taiwan |
|
|
9 |
|
Other foreign jurisdictions |
|
|
35 |
|
Total cash taxes paid |
|
$ |
178 |
|
Cash paid (net of refunds received) for income taxes as of December 31, 2024 and 2023 were $145 and $180, respectively.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 24, 2026 | Showing above |
| 2024 | Feb 25, 2025 | |
| 2023 | Feb 27, 2024 | |
| 2022 | Mar 14, 2023 | |
| 2021 | Feb 28, 2022 | |
| 2020 | Feb 23, 2021 | |
| 2019 | Feb 28, 2020 | |
| 2018 | Feb 26, 2019 | |
| 2017 | Feb 28, 2018 | |
| 2016 | Mar 1, 2017 | |
| 2015 | Feb 26, 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.