V2X, Inc.VVX
V2X, Inc. Income Taxes Disclosure
INCOME TAXES
The Company determines the provision for income taxes using the asset and liability approach. Under this approach, deferred income taxes represent the expected future tax consequences of temporary differences between the carrying amounts and tax basis of assets and liabilities. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. In assessing the need for a valuation allowance, the Company looks to the future reversal of existing taxable temporary differences, taxable income in carryback years, the feasibility of tax planning strategies and estimated future taxable income. The valuation allowance can be affected by changes to tax laws, changes to statutory tax rates and changes to future taxable income estimates. For the year ended December 31, 2025, the Company did not establish or release an additional valuation allowance.
The sources of pre-tax income and the components of income tax expense (benefit) are as follows:
| Year Ended December 31, | ||||||||||||||||||||
| (in thousands) | 2025 | 2024 | 2023 | |||||||||||||||||
| Income components | ||||||||||||||||||||
| United States | $ | 84,378 | $ | 31,024 | $ | (32,143) | ||||||||||||||
| Foreign | 16,525 | 7,817 | 7,625 | |||||||||||||||||
| Total pre-tax income (loss) | $ | 100,903 | $ | 38,841 | $ | (24,518) | ||||||||||||||
| Income tax expense (benefit) components | ||||||||||||||||||||
| Current income tax expense (benefit) | ||||||||||||||||||||
| United States-Federal | $ | (130) | $ | (10,015) | $ | (3,776) | ||||||||||||||
| United States-State and local | 1,531 | (1,207) | 1,648 | |||||||||||||||||
| Foreign | 12,286 | 7,168 | 7,208 | |||||||||||||||||
| Total current income tax expense (benefit) | 13,687 | (4,054) | 5,080 | |||||||||||||||||
| Deferred income tax expense (benefit) | ||||||||||||||||||||
| United States-Federal | 7,577 | 7,849 | (7,368) | |||||||||||||||||
| United States-State and local | 1,943 | 2,394 | 747 | |||||||||||||||||
| Foreign | (186) | (2,032) | (404) | |||||||||||||||||
| Total deferred income tax expense (benefit) | 9,334 | 8,211 | (7,025) | |||||||||||||||||
| Total income tax expense (benefit) | $ | 23,021 | $ | 4,157 | $ | (1,945) | ||||||||||||||
| Effective income tax rate | 22.8 | % | 10.7 | % | 7.9 | % | ||||||||||||||
The following table shows the principal reasons for the difference between the effective income tax rate and the statutory federal income tax rate:
| Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||||||||||||||||||||
| (In thousands, except percent data) | Amount | Percent | Amount | Percent | Amount | Percent | ||||||||||||||||||||||||||||||||
| Tax provision at U.S. statutory rate | $ | 21,190 | 21.0 | % | $ | 8,157 | 21.0 | % | $ | (5,149) | 21.0 | % | ||||||||||||||||||||||||||
State and local income tax, net of federal income tax effect1 | 2,550 | 2.5 | % | 1,422 | 3.7 | % | 1,892 | (7.7) | % | |||||||||||||||||||||||||||||
| Foreign tax effects | ||||||||||||||||||||||||||||||||||||||
| Germany | ||||||||||||||||||||||||||||||||||||||
Statutory tax rate difference between Germany and United States | 1,101 | 1.1 | % | 174 | 0.4 | % | 499 | (2.0) | % | |||||||||||||||||||||||||||||
| Other countries | 967 | 1.0 | % | (492) | (1.3) | % | 376 | (1.5) | % | |||||||||||||||||||||||||||||
| Effects of cross-border tax laws | ||||||||||||||||||||||||||||||||||||||
| GILTI, net of GILTI Foreign Tax Credits | (309) | (0.3) | % | 780 | 2.0 | % | 252 | (1.0) | % | |||||||||||||||||||||||||||||
| Tax Credits | ||||||||||||||||||||||||||||||||||||||
| Research and Development Credit | 66 | 0.1 | % | 324 | 0.8 | % | (1,310) | 5.3 | % | |||||||||||||||||||||||||||||
| Work Opportunity Tax Credit | (643) | (0.6) | % | (1,482) | (3.8) | % | (1,246) | 5.1 | % | |||||||||||||||||||||||||||||
| Nontaxable or Nondeductible items | ||||||||||||||||||||||||||||||||||||||
| Non-deductible compensation expense | 806 | 0.8 | % | 2,392 | 6.2 | % | 1,957 | (8.0) | % | |||||||||||||||||||||||||||||
| Transaction cost amortization | — | — | % | — | — | % | 2,799 | (11.4) | % | |||||||||||||||||||||||||||||
| Foreign derived intangible income deduction | (542) | (0.5) | % | — | — | % | (266) | 1.1 | % | |||||||||||||||||||||||||||||
| Dividend received deduction | (739) | (0.7) | % | (2,282) | (5.9) | % | — | — | % | |||||||||||||||||||||||||||||
| Unrealized loss (gain) | 675 | 0.7 | % | (659) | (1.7) | % | 189 | (0.8) | % | |||||||||||||||||||||||||||||
| Meals and entertainment | 14 | — | % | (448) | (1.2) | % | 494 | (2.0) | % | |||||||||||||||||||||||||||||
| Tax on gain from acquisitions | — | — | % | (664) | (1.7) | % | — | — | % | |||||||||||||||||||||||||||||
| Other | 226 | — | % | (61) | (0.1) | % | (411) | 1.6 | % | |||||||||||||||||||||||||||||
| Changes in Unrecognized Tax Benefits | ||||||||||||||||||||||||||||||||||||||
| Uncertain tax positions | (2,341) | (2.3) | % | (3,004) | (7.7) | % | (2,021) | 8.2 | % | |||||||||||||||||||||||||||||
| Effective income tax rate | $ | 23,021 | 22.8 | % | $ | 4,157 | 10.7 | % | $ | (1,945) | 7.9 | % | ||||||||||||||||||||||||||
1State taxes in California, Maryland, Texas and Virginia made up the majority (greater than 50%) of the tax effect in this category | ||||||||||||||||||||||||||||||||||||||
The effective income tax rate for the year ended December 31, 2025 was 22.8% compared to 10.7% for the year ended December 31, 2024. The increase in the effective income tax rate was primarily due to an increase in foreign taxes, decrease in tax credits, non-deductible expenses, nontaxable income and release of uncertain tax positions.
The effective income tax rate for the year ended December 31, 2024 was 10.7% compared to 7.9% for the year ended December 31, 2023. The increase in the effective income tax rate was primarily due to an increase in pre-tax book income, GILTI, decreases in non-deductible expenses, and research and development expenditures, partially offset by increases in nontaxable income.
The amount of income taxes paid, net of amounts refunded are as follows:
| Year Ended December 31, | ||||||||||||||||||||
| (in thousands) | 2025 | 2024 | 2023 | |||||||||||||||||
| Federal | $ | — | $ | 758 | $ | 1,300 | ||||||||||||||
| State | ||||||||||||||||||||
| California | 146 | 558 | 249 | |||||||||||||||||
| Maryland | 105 | 483 | 168 | |||||||||||||||||
| Texas | 837 | 596 | 487 | |||||||||||||||||
| Other states | (630) | 1,821 | 1,641 | |||||||||||||||||
| Foreign | ||||||||||||||||||||
| Canada | 1,189 | 320 | — | |||||||||||||||||
| Germany | 1,872 | 2,765 | 2,215 | |||||||||||||||||
| Iraq | 560 | 553 | 907 | |||||||||||||||||
| Saudi Arabia | 5,043 | — | — | |||||||||||||||||
| Other countries | 510 | 965 | 1,389 | |||||||||||||||||
| Total income taxes paid, net of amounts refunded | $ | 9,632 | $ | 8,819 | $ | 8,356 | ||||||||||||||
Deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and tax bases of assets and liabilities, applying enacted tax rates in effect for the year in which the Company expects the differences will reverse. Deferred tax assets and liabilities include the following:
| As of December 31, | ||||||||||||||
| (in thousands) | 2025 | 2024 | ||||||||||||
| Deferred tax assets | ||||||||||||||
| Compensation and benefits | $ | 14,820 | $ | 12,371 | ||||||||||
| Reserves | 23,343 | 23,208 | ||||||||||||
| Lease liability | 9,941 | 10,477 | ||||||||||||
| Research expenditures | — | 14,092 | ||||||||||||
| Tax credits | 14,447 | 7,951 | ||||||||||||
| Disallowed interest | 39,802 | 49,229 | ||||||||||||
| Net operating losses | 2,909 | 2,724 | ||||||||||||
| Other | 3,386 | 3,967 | ||||||||||||
| Total deferred tax assets | $ | 108,648 | $ | 124,019 | ||||||||||
| Deferred tax liabilities | ||||||||||||||
| Goodwill and intangibles | $ | (96,962) | $ | (97,225) | ||||||||||
| Unbilled receivables | (19,715) | (22,229) | ||||||||||||
| Property, plant and equipment, net | (5,799) | (7,888) | ||||||||||||
| Right-of-use assets | (7,217) | (8,775) | ||||||||||||
| Other liabilities | (7,312) | (8,885) | ||||||||||||
| Total deferred tax liabilities | (137,005) | (145,002) | ||||||||||||
| Net deferred tax liabilities | $ | (28,357) | $ | (20,983) | ||||||||||
Uncertain Tax Positions
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| Year Ended December 31, | ||||||||||||||||||||
| (in thousands) | 2025 | 2024 | 2023 | |||||||||||||||||
| Unrecognized tax benefits-January 1, | $ | 3,577 | $ | 6,593 | $ | 8,611 | ||||||||||||||
| Additions for: | ||||||||||||||||||||
| Current year tax positions | — | — | 517 | |||||||||||||||||
| Prior year tax positions | — | — | 28 | |||||||||||||||||
| Reductions for: | ||||||||||||||||||||
| Lapse of statute of limitations | (2,329) | (3,016) | (2,563) | |||||||||||||||||
| Unrecognized tax benefits-December 31, | $ | 1,248 | $ | 3,577 | $ | 6,593 | ||||||||||||||
As of December 31, 2025, 2024, and 2023, unrecognized tax benefits from uncertain tax positions were $1.2 million, $3.6 million and $6.6 million, respectively. It is reasonably possible that the Company's total unrecognized tax benefits will decrease by approximately $1.0 million during the next 12 months in connection with matters which may be resolved. The total amount of unrecognized benefit that, if recognized, would affect the effective tax rate was $1.6 million, $4.1 million, and $7.1 million as of December 31, 2025, 2024, and 2023, respectively, excluding the interest and penalties.
Interest relating to tax matters is classified as a component of interest expense and tax penalties as a component of income tax expense on the Consolidated Statements of Income (Loss). The Company recognized net interest including interest related to released reserves to tax matters of $(0.4) million, $(0.2) million, and $0.2 million during the years ended December 31, 2025, 2024 and 2023, respectively. The Company has accrued $(0.5) million and $(0.2) million of net interest and penalties as of December 31, 2025 and 2024, respectively.
The Company has not recorded a deferred tax liability for undistributed earnings of certain foreign subsidiaries since such earnings are considered to be reinvested indefinitely. If the earnings were distributed, the Company may be subject to federal income and foreign withholding taxes.
The Company files income tax returns in the U.S. and in various foreign jurisdictions. The Company is no longer subject to U.S. federal or state income tax examinations for years prior to 2022. Under U.S. GAAP, the Company is allowed to make an accounting policy choice of either (i) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the period cost method) or (ii) factoring such amounts into a measurement of its deferred taxes (the deferred method). The Company has chosen to account for GILTI under the period cost method as an accounting policy, and therefore the anticipated future expense associated with GILTI is not reflected in the Consolidated Financial Statements.
Other
The One Big Beautiful Bill Act (OBBBA) was enacted on July 4, 2025. The OBBBA makes permanent key elements of the Tax Cuts and Jobs Act, including 100% bonus depreciation, domestic research expensing and increases the business interest expense limitation. The Company expects to accelerate certain deductions post-enactment in 2025 and later years to minimize cash tax payments.
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.