NN INCNNBR
NN INC Income Taxes Disclosure
Income Taxes
The following table summarizes income (loss) before benefit (provision) for income taxes and share of net income from joint venture.
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| United States | $ | (45,979) | $ | (54,703) | $ | (64,394) | |||||||||||
| Foreign | 6,258 | 9,269 | 10,723 | ||||||||||||||
| Loss before provision for income taxes and share of net income from joint venture | $ | (39,721) | $ | (45,434) | $ | (53,671) | |||||||||||
The following table summarizes total income tax expense (benefit) recognized in each year.
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current taxes: | |||||||||||||||||
| U.S. Federal | $ | (599) | $ | (583) | $ | (580) | |||||||||||
| State | 76 | (378) | 126 | ||||||||||||||
| Foreign | 4,554 | 4,292 | 3,901 | ||||||||||||||
| Total current tax expense | 4,031 | 3,331 | 3,447 | ||||||||||||||
| Deferred taxes: | |||||||||||||||||
| U.S. Federal | $ | (9,091) | $ | (10,421) | $ | (9,057) | |||||||||||
| State | 1,785 | (2,262) | (1,833) | ||||||||||||||
| Foreign | (1,971) | (1,138) | (721) | ||||||||||||||
| U.S. federal, state and foreign valuation allowance | 8,399 | 12,900 | 10,449 | ||||||||||||||
| Total deferred tax benefit | (878) | (921) | (1,162) | ||||||||||||||
| Total income tax expense | $ | 3,153 | $ | 2,410 | $ | 2,285 | |||||||||||
The following tables present a reconciliation of income taxes based on the U.S. federal statutory income tax rate.
| Years Ended December 31, | ||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||||||||
| $ | % | $ | % | $ | % | |||||||||||||||||||||
| U.S federal statutory income tax rate | $ | (8,342) | 21.0 | % | $ | (9,541) | 21.0 | % | $ | (11,271) | 21.0 | % | ||||||||||||||
| State taxes, net of federal taxes, exclusive of tax reform | 60 | (0.2) | % | (299) | 0.7 | % | 100 | (0.2) | % | |||||||||||||||||
| Foreign tax effects | ||||||||||||||||||||||||||
| France | ||||||||||||||||||||||||||
| Intercompany lending | 519 | (1.3) | % | 583 | (1.3) | % | 288 | (0.5) | % | |||||||||||||||||
| Change in valuation allowance | (96) | 0.2 | % | 42 | (0.1) | % | 731 | (1.4) | % | |||||||||||||||||
| Other | 15 | — | % | (7) | — | % | (408) | 0.8 | % | |||||||||||||||||
| Brazil | ||||||||||||||||||||||||||
| Change in valuation allowance | — | — | % | — | — | % | (779) | 1.5 | % | |||||||||||||||||
| Other | 226 | (0.6) | % | 282 | (0.6) | % | 443 | (0.8) | % | |||||||||||||||||
| China | ||||||||||||||||||||||||||
| R&D superdeduction | (601) | 1.5 | % | (598) | 1.3 | % | (537) | 1.0 | % | |||||||||||||||||
| Tax rate differential | (571) | 1.4 | % | (569) | 1.3 | % | (486) | 0.9 | % | |||||||||||||||||
| Withholding taxes | 1,713 | (4.3) | % | 1,820 | (4.0) | % | 1,110 | (2.1) | % | |||||||||||||||||
| Other | 99 | (0.2) | % | (187) | 0.4 | % | (202) | 0.4 | % | |||||||||||||||||
| Mexico | ||||||||||||||||||||||||||
| Tax rate differential | (433) | 1.1 | % | 29 | (0.1) | % | 135 | (0.3) | % | |||||||||||||||||
| Deferred true-ups | — | — | % | — | — | % | 718 | (1.3) | % | |||||||||||||||||
| Change in valuation allowance | 1,109 | (2.8) | % | — | — | % | — | — | % | |||||||||||||||||
| Other | 306 | (0.8) | % | (142) | 0.3 | % | (7) | — | % | |||||||||||||||||
| Other | 74 | (0.2) | % | 170 | (0.4) | % | (164) | 0.3 | % | |||||||||||||||||
| Effect of cross-border tax laws | ||||||||||||||||||||||||||
| GILTI | 741 | (1.9) | % | 1,395 | (3.1) | % | 1,134 | (2.1) | % | |||||||||||||||||
| Tax Credits | — | — | % | (251) | 0.6 | % | (123) | 0.2 | % | |||||||||||||||||
| Change in valuation allowance | 9,091 | (22.9) | % | 10,420 | (22.9) | % | 8,645 | (16.1) | % | |||||||||||||||||
| Nontaxable or nondeductible items | ||||||||||||||||||||||||||
| Share-based compensation | 73 | (0.2) | % | (936) | 2.1 | % | 561 | (1.0) | % | |||||||||||||||||
| Warrant revaluation | (700) | 1.8 | % | 12 | — | % | 2,327 | (4.3) | % | |||||||||||||||||
| Other | 565 | (1.4) | % | 573 | (1.3) | % | 201 | (0.4) | % | |||||||||||||||||
| Changes in unrecognized tax benefits | 14 | — | % | 13 | — | % | 13 | — | % | |||||||||||||||||
| Other adjustments | ||||||||||||||||||||||||||
| Interest on federal refunds | (618) | 1.6 | % | (595) | 1.3 | % | (592) | 1.1 | % | |||||||||||||||||
| Other | (91) | 0.3 | % | 196 | (0.5) | % | 448 | (1.0) | % | |||||||||||||||||
| Effective tax rate | $ | 3,153 | (7.9) | % | $ | 2,410 | (5.3) | % | $ | 2,285 | (4.3) | % | ||||||||||||||
Our effective tax rate was (7.9)% for the year ended December 31, 2025, compared to (5.3)% for the year ended December 31, 2024. The effective tax rate differed from the U.S. federal statutory tax rate of 21% primarily due to the accrual of tax on non-permanently reinvested unremitted earnings of foreign subsidiaries, foreign tax rate differences and the limitation on the amount of tax benefit recorded for losses in certain jurisdictions where we believe it is more likely than not that a future tax benefit may not be realized. Our effective tax rate was (5.3)% and (4.3)% for the years ended December 31, 2024 and 2023, respectively, which differed from the U.S. federal statutory tax rate of 21% primarily due to the impact of our valuation allowance changes during each year. For the years ended December 31, 2025, 2024 and 2023, a majority of our state income tax expense relates to Massachusetts and Texas.
In 2021, we filed a refund claim with the IRS as a result of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). During the years ended December 31, 2025 and 2024, we accrued $0.6 million and $0.7 million, respectively, of interest on the CARES Act refund. Including interest accrued on the initial refund amount, we have a $12.9 million tax refund receivable at December 31, 2025, which is in the process of IRS review. The timing of the receipt of the refund is expected in 2026.
On July 4, 2025, H.R.1, the One Big Beautiful Bill Act (“OBBBA”) was signed into law, which impacts various provisions of the U.S. federal tax code, including but not limited to 100% bonus depreciation, immediate expensing of domestic research and development costs, modifications to the limitation on business interest expense and changes to the international tax regime. Most provisions are effective for tax years beginning after December 31, 2024, with certain transition rules and exceptions. The impact of OBBBA is not material to our consolidated financial statements and will not have a significant impact on our effective tax rate due to the full valuation allowance in the U.S. We continue to monitor additional guidance issued related to OBBBA.
The following table summarizes the principal components of the deferred tax assets and liabilities.
| As of December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred income tax liabilities: | |||||||||||
| Tax in excess of book depreciation | $ | 10,538 | $ | 11,917 | |||||||
| Intangible assets | 6,639 | 10,533 | |||||||||
| Operating leases | 7,598 | 9,005 | |||||||||
| Taxes on unremitted foreign earnings | 4,258 | 4,488 | |||||||||
| Other deferred tax liabilities | 854 | 682 | |||||||||
| Total deferred income tax liabilities | 29,887 | 36,625 | |||||||||
| Deferred income tax assets: | |||||||||||
| Interest expense limitation | 21,564 | 18,571 | |||||||||
| Goodwill | 15,590 | 18,393 | |||||||||
| Inventories | 4,989 | 5,062 | |||||||||
| Section 174 research and development costs | 2,089 | 3,123 | |||||||||
| Pension and personnel accruals | 1,870 | 2,297 | |||||||||
| Operating leases | 9,481 | 11,154 | |||||||||
| Net operating loss carryforwards | 36,610 | 29,304 | |||||||||
| Credit carryforwards | 3,513 | 3,099 | |||||||||
| Accruals and reserves | 282 | 341 | |||||||||
| Other deferred tax assets | 747 | 981 | |||||||||
| Deferred income tax assets before valuation allowance | 96,735 | 92,325 | |||||||||
| Valuation allowance on deferred tax assets | (69,487) | (59,340) | |||||||||
| Total deferred income tax assets | 27,248 | 32,985 | |||||||||
| Net deferred income tax liabilities | $ | 2,639 | $ | 3,640 | |||||||
As of December 31, 2025, we had a $47.9 million U.S. federal net operating loss (“NOL”) carryover. The federal NOL has an indefinite life, but utilization within any tax year is limited to 80% of taxable income. As of December 31, 2025, we had $16.7 million of tax effected, state NOL carryovers, which begin to expire in 2030. We also have $13.4 million, tax-effected, of foreign NOL carryovers at December 31, 2025. The carryforward period of the foreign NOLs varies by jurisdiction. As of December 31, 2025, we had $95.7 million in U.S. federal interest expense carryforwards and $1.9 million, tax effected, state interest carryforwards. The interest carryforwards have an indefinite life but are limited to 30% of adjusted taxable income.
We have $0.4 million and $3.2 million of U.S. federal tax credits and tax credits in foreign jurisdictions, respectively, as of December 31, 2025. The U.S. federal tax credits will begin expiring in 2041 while the foreign tax credits will begin expiring in 2026.
We assess available positive and negative evidence to estimate whether it is more likely than not sufficient future taxable income will be generated to provide use of the existing deferred tax assets. A significant piece of objective negative evidence evaluated is cumulative losses incurred over the three-year period ended December 31, 2025. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future earnings growth. On the basis of this evaluation, as of December 31, 2025, a valuation allowance of $69.5 million has been recorded to recognize only the portion of the
deferred tax asset that is more likely than not to be realized without consideration of future earnings growth. We have established valuation allowances on all net deferred tax assets in the U.S., France, Poland and the Power Mexico business.
We believe all remaining tax assets will more likely than not be realized. However, the amount of the deferred tax asset realized will change based on future conditions, and the amount considered realizable will be adjusted if objective negative evidence in the form of cumulative losses is no longer present allowing additional weight to be given to subjective evidence such as our projections for growth.
During the years ended December 31, 2025, 2024 and 2023, the valuation allowance increased by $10.1 million, $11.8 million and $17.3 million, respectively, primarily due to allowances recorded against U.S. federal net operating loss carryforwards, and carryforwards of disallowed interest expense which are subject to certain annual deduction limitations. During the year ended December 31, 2023, the $17.3 million increase was partially offset by the release of the valuation allowance in Brazil.
As a result of the deemed mandatory repatriation provisions in the U.S. Tax Cuts and Jobs Act of 2017 and subsequent recognition in income of GILTI, we do not have material basis differences related to cumulative unremitted earnings for U.S. income tax purposes. However, we continue to evaluate the impact that repatriation of foreign earnings would have on withholding and other taxes. As of December 31, 2025, we have recorded a liability of $4.3 million for the anticipated withholding taxes that would be due upon repatriation of the unremitted earnings of those subsidiaries for which management does not intend to permanently reinvest.
We are subject to U.S. federal income tax as well as tax in several foreign jurisdictions. We are also subject to tax by various state authorities. The tax years subject to examination vary by jurisdiction. We are no longer subject to U.S. federal examination for periods before 2022. We regularly assess the outcomes of both ongoing and future examinations for the current or prior years to ensure our provision for income taxes is sufficient. We recognize liabilities based on estimates of whether additional taxes will be due, and we believe our reserves are adequate in relation to any potential assessments. The outcome of any one examination, some of which may conclude during the next twelve months, is not expected to have a material impact on our financial position or results of operations.
Interest and penalties related to federal, state, and foreign income tax matters are recorded as a component of the provision for income taxes in our Consolidated Statements of Operations and Comprehensive Income (Loss). Accrued interest and penalties of $0.6 million and $0.5 million are included in other non-current liabilities as of December 31, 2025 and 2024, respectively.
The following table presents a reconciliation of the beginning and ending amounts of unrecognized tax benefits, excluding interest and penalties.
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Balance at beginning of year | $ | 117 | $ | 121 | $ | 118 | |||||||||||
| Additions for tax positions of prior years | 11 | — | 3 | ||||||||||||||
| Reductions for tax positions of prior years | — | (4) | — | ||||||||||||||
| Balance at end of year | $ | 128 | $ | 117 | $ | 121 | |||||||||||
The increase to unrecognized tax benefits in 2025 is related to the foreign currency remeasurement of previously unrecognized tax benefits. As of December 31, 2025, the unrecognized tax benefits would, if recognized, impact our effective tax rate by $0.7 million, inclusive of the impact of interest and penalties.
The following table shows a reconciliation of income taxes paid (refunded) by jurisdiction.
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| US Federal | $ | — | $ | 90 | $ | — | |||||||||||
| US State | |||||||||||||||||
| North Carolina | 14 | 5 | (641) | ||||||||||||||
| Massachusetts | — | (455) | 57 | ||||||||||||||
| Other | 82 | 85 | 20 | ||||||||||||||
| Foreign | |||||||||||||||||
| Brazil | 890 | 686 | 588 | ||||||||||||||
| China | 3,653 | 3,265 | 2,982 | ||||||||||||||
| Mexico | 287 | 230 | 473 | ||||||||||||||
| Total taxes paid | $ | 4,926 | $ | 3,906 | $ | 3,479 | |||||||||||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 4, 2026 | Showing above |
| 2024 | Mar 6, 2025 | |
| 2023 | Mar 12, 2024 | |
| 2022 | Mar 10, 2023 | |
| 2021 | Mar 11, 2022 | |
| 2020 | Mar 15, 2021 | |
| 2019 | Mar 16, 2020 | |
| 2018 | Mar 18, 2019 | |
| 2017 | Apr 2, 2018 | |
| 2016 | Mar 16, 2017 | |
| 2015 | Mar 15, 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.