NPK International Inc.NPKI
NPK International Inc. Income Taxes Disclosure
Income Taxes
The provision (benefit) for income taxes from continuing operations is as follows:
| Year Ended December 31, | |||||||||||||||||
| (In thousands) | 2025 | 2024 | 2023 | ||||||||||||||
| Current: | |||||||||||||||||
| U.S. Federal | $ | 44 | $ | 4,165 | $ | 3,692 | |||||||||||
| U.S. State | 398 | 2,185 | 878 | ||||||||||||||
| Foreign | 110 | — | (33) | ||||||||||||||
| Total current | 552 | 6,350 | 4,537 | ||||||||||||||
| Deferred: | |||||||||||||||||
| U.S. Federal | 11,664 | (11,975) | 1,424 | ||||||||||||||
| U.S. State | (475) | (1,247) | (199) | ||||||||||||||
| Foreign | (36) | 134 | (189) | ||||||||||||||
| Total deferred | 11,153 | (13,088) | 1,036 | ||||||||||||||
| Total provision (benefit) for income taxes from continuing operations | $ | 11,705 | $ | (6,738) | $ | 5,573 | |||||||||||
Income from continuing operations before income taxes is as follows:
| Year Ended December 31, | |||||||||||||||||
| (In thousands) | 2025 | 2024 | 2023 | ||||||||||||||
| U.S. | $ | 49,957 | $ | 30,990 | $ | 20,335 | |||||||||||
| Foreign | (2,307) | (2,129) | (613) | ||||||||||||||
| Income from continuing operations before income taxes | $ | 47,650 | $ | 28,861 | $ | 19,722 | |||||||||||
The effective income tax rate from continuing operations for the year ended December 31, 2025 is reconciled to the statutory federal income tax rate as follows:
| Year Ended December 31, 2025 | |||||||||||
| (In thousands) | Amount | Percentage | |||||||||
| Provision (benefit) for income taxes from continuing operations at federal statutory rate | $ | 10,007 | 21.0 | % | |||||||
State and local income tax, net of federal (national) income tax effect (1) | (93) | (0.2) | % | ||||||||
| Foreign tax effects: | |||||||||||
| United Kingdom | 609 | 1.3 | % | ||||||||
| Other foreign jurisdictions | (51) | (0.1) | % | ||||||||
| Tax credits | (84) | (0.2) | % | ||||||||
| Nontaxable or nondeductible items: | |||||||||||
| Nondeductible executive compensation | 1,447 | 3.0 | % | ||||||||
| Other items, net | (7) | — | % | ||||||||
| Changes in unrecognized tax benefits | (67) | (0.1) | % | ||||||||
| Other items, net | (56) | (0.1) | % | ||||||||
| Total provision for income taxes from continuing operations | $ | 11,705 | 24.6 | % | |||||||
(1) State and local income taxes in Texas, New Jersey, Pennsylvania, Florida, and Louisiana comprise the majority of this category in 2025.
The effective income tax rate from continuing operations for the years ended December 31, 2024 and 2023 is reconciled to the statutory federal income tax rate as follows:
| (In thousands) | 2024 | 2023 | |||||||||||||||
| Provision (benefit) for income taxes from continuing operations at federal statutory rate | $ | 6,061 | $ | 4,142 | |||||||||||||
| Nondeductible executive compensation | 1,486 | 999 | |||||||||||||||
| Stock-based compensation | (1,087) | (52) | |||||||||||||||
| Change in valuation allowance | (15,161) | (231) | |||||||||||||||
| State tax expense (benefit), net | 1,566 | 886 | |||||||||||||||
| Other items, net | 397 | (171) | |||||||||||||||
| Total provision (benefit) for income taxes from continuing operations | $ | (6,738) | $ | 5,573 | |||||||||||||
The provision for income taxes from continuing operations was $11.7 million for 2025 compared to a benefit for income taxes of $6.7 million for 2024. The years ended 2025 and 2024 include income tax benefits of $1.5 million and $15.9 million, respectively, primarily reflecting the release of valuation allowances on U.S. federal and state net operating losses and other tax credit carryforwards following the sale of the Fluids Systems business. The provision for income taxes from continuing operations was $5.6 million for 2023.
Temporary differences and carryforwards which give rise to deferred tax assets and liabilities consisted of the following at December 31:
| (In thousands) | 2025 | 2024 | |||||||||
| Deferred tax assets: | |||||||||||
| Net operating losses | $ | 36,392 | $ | 32,127 | |||||||
| Capital losses | 17,194 | 20,309 | |||||||||
| Foreign tax credits | 4,782 | 4,782 | |||||||||
| Accruals not currently deductible | 1,133 | 3,579 | |||||||||
| Unrealized foreign exchange losses, net | — | 372 | |||||||||
| Research and development credits | 6,163 | 6,282 | |||||||||
| Stock-based compensation | 894 | 1,133 | |||||||||
| Capitalized inventory costs | 718 | 705 | |||||||||
| Capitalized research and development expenditures | — | 7,396 | |||||||||
| Other | 5,576 | 1,866 | |||||||||
| Total deferred tax assets | 72,852 | 78,551 | |||||||||
| Valuation allowance | (25,775) | (34,331) | |||||||||
| Total deferred tax assets, net of allowances | 47,077 | 44,220 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Accelerated depreciation and amortization | (46,289) | (29,830) | |||||||||
| Other | (2,729) | — | |||||||||
| Total deferred tax liabilities | (49,018) | (29,830) | |||||||||
| Total net deferred tax liabilities | $ | (1,941) | $ | 14,390 | |||||||
| Noncurrent deferred tax assets | $ | 5,535 | $ | 15,593 | |||||||
| Noncurrent deferred tax liabilities | (7,476) | (1,203) | |||||||||
| Net deferred tax liabilities | $ | (1,941) | $ | 14,390 | |||||||
We have U.S. federal income tax net operating loss carryforwards (“NOLs”) of approximately $134.9 million available to reduce future U.S. taxable income, which do not expire. We also have state NOLs of approximately $142.6 million available to reduce future state taxable income, including approximately $69.4 million which do not expire and approximately $73.2 million which expire in varying amounts beginning in 2026 through 2045. Foreign NOLs of approximately $8.1 million are available to reduce future taxable income, some of which expire beginning in 2034. U.S. federal capital loss carryforwards of approximately $72.8 million expire in 2029.
The realization of our net deferred tax assets is dependent on our ability to generate taxable income in future periods. At December 31, 2025 and 2024, we have recorded a valuation allowance in the amount of $25.8 million and $34.3 million, respectively, primarily related to U.S. capital loss carryforwards, certain U.S. state and foreign NOL carryforwards, as well as foreign tax credits, which may not be realized. The change in the valuation allowance in 2025 is primarily related to the decrease in capital loss related to the sale of the Fluids Systems business upon finalizing our U.S. federal income tax return, as well as by the release of approximately $1.5 million of valuation allowances primarily related to U.S. state net operating losses that are now expected to be realized.
We file income tax returns in the U.S. and certain non-U.S. jurisdictions and are subject to examination in the various jurisdictions in which we file. We are no longer subject to income tax examinations for U.S. federal and substantially all state jurisdictions for years prior to 2021 and for substantially all foreign jurisdictions for years prior to 2019.
A reconciliation of the beginning and ending provision for uncertain tax positions is as follows:
| (In thousands) | 2025 | 2024 | 2023 | ||||||||||||||
| Balance at January 1 | $ | 85 | $ | 109 | $ | 193 | |||||||||||
| Additions (reductions) for tax positions of prior years | — | — | — | ||||||||||||||
| Additions (reductions) for tax positions of current year | — | — | — | ||||||||||||||
| Reductions for settlements with tax authorities | — | — | — | ||||||||||||||
| Reductions for lapse of statute of limitations | (85) | (24) | (84) | ||||||||||||||
| Balance at December 31 | $ | — | $ | 85 | $ | 109 | |||||||||||
We recognize accrued interest and penalties related to uncertain tax positions in operating expenses. The amount of interest and penalties was immaterial for all periods presented.
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.