Loar Holdings Inc. Income Taxes Disclosure
16. Income Taxes
During the year ending December 31, 2025, the Company adopted ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires a public business entity, on a prospective basis, to disclose specific categories in its annual effective tax rate reconciliation and provide disaggregated information about significant reconciling items by jurisdiction and by nature. The ASU also requires entities to disclose their income tax payments (net of refunds) to international, federal, and state and local jurisdictions.
The components of income before income taxes were as follows (in thousands):
|
|
Years Ended December 31, |
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
United States |
|
$ |
67,325 |
|
|
$ |
13,166 |
|
|
$ |
918 |
|
Foreign |
|
|
13,253 |
|
|
|
15,895 |
|
|
|
1,519 |
|
Income before income taxes |
|
$ |
80,578 |
|
|
$ |
29,061 |
|
|
$ |
2,437 |
|
The income tax (provision) benefit consisted of (in thousands):
|
|
Years Ended December 31, |
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Current: |
|
|
|
|
|
|
|
|
|
|||
Federal |
|
$ |
(642 |
) |
|
$ |
(5,376 |
) |
|
$ |
(8,080 |
) |
State |
|
|
(557 |
) |
|
|
(370 |
) |
|
|
(297 |
) |
Foreign |
|
|
(3,552 |
) |
|
|
(2,636 |
) |
|
|
(2,432 |
) |
|
|
|
(4,751 |
) |
|
|
(8,382 |
) |
|
|
(10,809 |
) |
Deferred: |
|
|
|
|
|
|
|
|
|
|||
Federal |
|
|
(4,216 |
) |
|
|
1,049 |
|
|
|
1,893 |
|
State |
|
|
(780 |
) |
|
|
161 |
|
|
|
117 |
|
Foreign |
|
|
1,315 |
|
|
|
342 |
|
|
|
1,747 |
|
|
|
|
(3,681 |
) |
|
|
1,552 |
|
|
|
3,757 |
|
Income tax provision |
|
$ |
(8,432 |
) |
|
$ |
(6,830 |
) |
|
$ |
(7,052 |
) |
A reconciliation of the provision for income taxes to the amount computed by applying the 21% statutory U.S. federal income tax rate to income before income taxes after the adoption of ASU 2023-09 is as follows (dollars in thousands):
|
|
Year Ended December 31, 2025 |
|
|||||
|
|
Amount |
|
|
Effective Tax Rate |
|
||
Provision at U.S. federal statutory tax rate |
|
$ |
(16,920 |
) |
|
|
21.0 |
% |
State and local taxes, net of federal (national) income tax effect(1) |
|
|
(1,220 |
) |
|
|
1.5 |
% |
Foreign tax effects |
|
|
|
|
|
|
||
Germany |
|
|
|
|
|
|
||
Effect of Rates Different than Statutory |
|
|
1,340 |
|
|
|
(1.7 |
)% |
Trade Tax |
|
|
(1,222 |
) |
|
|
1.5 |
% |
Other |
|
|
261 |
|
|
|
(0.3 |
)% |
Other foreign jurisdictions |
|
|
166 |
|
|
|
(0.2 |
)% |
Effect of changes in tax laws or rates enacted in the current period |
|
|
11,087 |
|
|
|
(13.8 |
)% |
Effect of cross-border tax laws |
|
|
|
|
|
|
||
Global intangible low-taxed income |
|
|
(1,021 |
) |
|
|
1.3 |
% |
Foreign-derived intangible income |
|
|
487 |
|
|
|
(0.6 |
)% |
Tax credits |
|
|
|
|
|
|
||
Research & development credits |
|
|
931 |
|
|
|
(1.1 |
)% |
Nontaxable or nondeductible items |
|
|
|
|
|
|
||
Disallowed officer compensation |
|
|
(1,678 |
) |
|
|
2.1 |
% |
Transaction costs |
|
|
(1,207 |
) |
|
|
1.5 |
% |
Other |
|
|
369 |
|
|
|
(0.5 |
)% |
Changes in unrecognized tax benefits |
|
|
259 |
|
|
|
(0.3 |
)% |
Other adjustments |
|
|
(64 |
) |
|
|
0.1 |
% |
Income tax provision |
|
$ |
(8,432 |
) |
|
|
10.5 |
% |
A reconciliation of the provision for income taxes to the amount computed by applying the 21% statutory U.S. federal income tax rate to income before income taxes for years prior to the adoption of ASU 2023-09 is as follows (in thousands):
|
|
Years Ended December 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Provision at statutory rate |
|
$ |
(6,103 |
) |
|
$ |
(512 |
) |
State and local taxes, net of federal tax benefit |
|
|
(136 |
) |
|
|
(78 |
) |
Permanent differences and other |
|
|
456 |
|
|
|
(387 |
) |
Global intangible low-taxed income |
|
|
(489 |
) |
|
|
|
|
Foreign-derived intangible income |
|
|
141 |
|
|
|
1,575 |
|
Foreign currency gain |
|
|
|
|
|
556 |
|
|
Transaction costs |
|
|
2,484 |
|
|
|
(237 |
) |
Disallowed officer compensation |
|
|
(1,726 |
) |
|
|
|
|
Rate adjustment |
|
|
(129 |
) |
|
|
(343 |
) |
Research & development credits |
|
|
917 |
|
|
|
1,031 |
|
Foreign rate differential |
|
|
(839 |
) |
|
|
(262 |
) |
Valuation allowance |
|
|
(1,406 |
) |
|
|
(8,395 |
) |
Income tax provision |
|
$ |
(6,830 |
) |
|
$ |
(7,052 |
) |
The components of the net deferred income tax liability were as follows (in thousands):
|
|
December 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Deferred income tax assets: |
|
|
|
|
|
|
||
Accounts receivable |
|
$ |
724 |
|
|
$ |
446 |
|
Inventories |
|
|
6,049 |
|
|
|
6,094 |
|
Accrued expenses |
|
|
3,184 |
|
|
|
2,355 |
|
Disallowed interest |
|
|
22,190 |
|
|
|
24,150 |
|
Lease liabilities |
|
|
1,752 |
|
|
|
1,575 |
|
Capitalized research and development |
|
|
5,180 |
|
|
|
6,664 |
|
Credits |
|
|
1,615 |
|
|
|
475 |
|
Net operating loss |
|
|
9,951 |
|
|
|
2,826 |
|
Stock based compensation |
|
|
2,999 |
|
|
|
1,214 |
|
Other |
|
|
936 |
|
|
|
|
|
Total deferred income tax assets |
|
|
54,580 |
|
|
|
45,799 |
|
Valuation allowance |
|
|
(482 |
) |
|
|
(11,495 |
) |
Total net deferred income tax assets |
|
|
54,098 |
|
|
|
34,304 |
|
Deferred income tax liabilities: |
|
|
|
|
|
|
||
Intangible and other long-term assets |
|
|
(91,238 |
) |
|
|
(41,444 |
) |
Indefinite-lived intangible assets |
|
|
(21,831 |
) |
|
|
(15,908 |
) |
Property, plant and equipment |
|
|
(7,091 |
) |
|
|
(7,821 |
) |
Operating lease assets |
|
|
(1,711 |
) |
|
|
(1,535 |
) |
Prepaid expenses |
|
|
(598 |
) |
|
|
(483 |
) |
Unrealized gain |
|
|
(6 |
) |
|
|
(5 |
) |
Total deferred income tax liabilities |
|
|
(122,475 |
) |
|
|
(67,196 |
) |
Net deferred income tax liability |
|
$ |
(68,377 |
) |
|
$ |
(32,892 |
) |
As of December 31, 2025, the Company had U.S. federal net operating loss carryforwards of approximately $35.9 million which can be carried forward indefinitely. The Company has state net operating loss carryforwards of approximately $17.4 million, $1.5 million which can be carried forward indefinitely and $15.9 million that begin to expire in 2030. The Company also had federal research and development credits of $0.9 million which will begin to expire in 2045 and state research and development tax credits totaling approximately $0.7 million, of which $0.5 million have an indefinite carryforward period and $0.2 million begin to expire in 2042. Additionally, as of December 31, 2025, the Company had foreign net operating loss carryforwards of $6.1 million and foreign research and development credits of $0.1 million, both of which may be carried forward indefinitely.
On July 4, 2025, the One Big Beautiful Bill Act ("OBBBA") was signed into law. The OBBBA makes permanent key elements of the Tax Cuts and Jobs Act, including 100% bonus depreciation, domestic research cost expensing, and the business interest expense limitation. ASC 740, Income Taxes, requires the effects of changes in tax rates and laws on deferred tax balances to be recognized in the period in which the legislation is enacted. The changes to the business interest expense limitation allow the Company to utilize its interest expense carryover, resulting in a release of the valuation allowance currently recorded. Consequently, during the year ended December 31, 2025, the Company recognized a tax benefit of $11.1 million from the release of its valuation allowance.
The realization of deferred income tax assets may be dependent on the Company's ability to generate sufficient income in future years in the associated jurisdiction to which the deferred income tax assets relate. As of December 31, 2025, the Company determined that it was more likely than not to realize its deferred tax assets related to its disallowed interest carryforward and foreign research and development credits, and therefore has released the valuation allowance against its federal and foreign deferred tax assets, respectively. The Company maintains a valuation allowance on certain state disallowed interest carryforward deferred tax assets that are not more likely than not to be realized.
The Company files income tax returns in the United States, various state jurisdictions, Germany, the UK and France, with varying statutes of limitations. The Company is subject to income tax examinations by the tax authorities in the US, Germany, UK, and France for years generally beginning in 2021. The Company is currently under examination for its federal income taxes in Germany for tax years 2021 through 2023 and France for fiscal years June 2023 through June 2025.
The Company recognizes the benefits of tax return positions if it is determined that the positions are “more-likely-than-not” to be sustained by the taxing authority. Interest and penalties accrued on unrecognized tax benefits will be recorded as tax expense in the period incurred.
The changes in unrecognized tax benefits were as follows (in thousands):
|
|
Years Ended December 31, |
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Unrecognized tax benefit, beginning balance |
|
$ |
774 |
|
|
$ |
551 |
|
|
$ |
517 |
|
Additions based on tax positions related to the current year |
|
|
423 |
|
|
|
223 |
|
|
|
34 |
|
Additions based on tax positions from prior years |
|
|
38 |
|
|
|
— |
|
|
|
— |
|
Reductions for tax positions of prior years |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Reductions due to lapse of the applicable statute of limitations |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Unrecognized tax benefit, ending balance |
|
$ |
1,235 |
|
|
$ |
774 |
|
|
$ |
551 |
|
There are tax benefits of $0.5 million included in the balances of unrecognized tax benefits at December 31, 2025, 2024, and 2023, that, if recognized, would affect the effective tax rates.
The Company’s policy is to record tax-related interest and penalties within the tax provision. As of December 31, 2025, there was $0.1 million of interest and penalties recorded related to unrecognized tax benefits.
The Company has not recognized a deferred tax liability for the undistributed earnings of the Company’s foreign operations as the Company considers these earnings to be permanently reinvested.
In December 2021, the Organization for Economic Co-operation and Development (OECD) introduced Base Erosion and Profit Shifting (BEPS) Pillar 2 rules, which impose a 15% global minimum tax rate for tax years beginning in 2024. The Company currently does not meet the annual revenue threshold and, as a result, is not subject to the Pillar 2 rules. The Company will continue to monitor whether Pillar 2 may have an impact on the consolidated financial statements.
Cash income taxes paid during the year ended December 31, 2025 was comprised of (in thousands):
Federal |
|
$ |
5,233 |
|
State |
|
|
1,026 |
|
Foreign |
|
|
|
|
Germany |
|
|
2,955 |
|
Other |
|
|
180 |
|
Total |
|
$ |
9,394 |
|
Income taxes paid during the years ended December 31, 2024 and 2023 were $12.6 million and $5.0 million, respectively.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 2, 2026 | Showing above |
| 2024 | Mar 31, 2025 | |
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.