Income Taxes |
9 Months Ended |
|---|---|
Sep. 30, 2022 | |
| Income Tax Disclosure [Abstract] | |
| Income Taxes | INCOME TAXES Effective Tax Rate Income tax expense during interim periods is based on an estimated annual effective income tax rate, plus discrete items that may occur in any given interim periods. The computation of the estimated effective income tax rate at each interim period requires certain estimates and judgment including, but not limited to, forecasted operating income for the year, projections of the income earned and taxed in various jurisdictions, newly enacted tax rate and legislative changes, permanent and temporary differences, and the likelihood of recovering deferred tax assets generated in the current year. For the three months ended September 30, 2022, we recorded an income tax benefit of $5.7 million and for the three months ended October 1, 2021 an income tax provision of $0.7 million, representing effective income tax rates of 25.2% and 6.2%, respectively. For the nine months ended September 30, 2022, we recorded an income tax benefit of $2.5 million and for the nine months ended October 1, 2021 an income tax provision of $7.6 million, representing effective income tax rates of 39.8% and 16.6%, respectively. The effective income tax rates vary from the federal statutory rate of 21% mainly due to state and foreign taxes, non-deductibility of transaction costs from the recent Merger, disallowed compensation deduction under Internal Revenue Code Section 162(m), and available deductions not reflected in book income, and income tax credits. The higher effective tax rate for the nine ended September 30, 2022, was primarily due to non-deductible costs related to the transaction described in Note 3, Merger. The Merger qualified as a nontaxable, type “A” reorganization within the meaning of the IRC Section 368(a)(1)(A). The historical tax basis of the assets and liabilities, net operating losses, and other tax attributes of Vertex, including tax deductible goodwill existing as of the Closing Date from prior acquisitions of the legacy Vertex will be carried over to V2X. No additional tax-deductible goodwill was created in connection with the Merger. Since ASC 740-10-25-3(d) prohibits recognition of a deferred tax liability relating to temporary differences for goodwill, no deferred tax liability on goodwill resulting from this Merger was recorded. In accordance with ASC 805-740-25-3, based on initial purchase accounting calculations, a net deferred tax liability of $26.9 million for the opening book versus tax basis differences was reported per valuation of assets and liabilities as of the Closing Date. Uncertain Tax Provisions As of September 30, 2022 and December 31, 2021, unrecognized tax benefits from uncertain tax positions were $10.8 million and $9.3 million, respectively. The increase in the uncertain tax positions was principally the result of the additional Foreign Derived Intangible Income (FDII) deduction as the Company reserves a portion of the FDII benefit claimed or expected to be claimed on its income tax return filings.
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