FLOWSERVE CORPFLS
FLOWSERVE CORP Income Taxes Disclosure
INCOME TAXES
Earnings before income taxes comprised:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (Amounts in thousands) | |||||||||||||||||
| U.S. | $ | 137,874 | $ | 109,794 | $ | 212,631 | |||||||||||
| Foreign | 387,524 | 276,361 | 11,119 | ||||||||||||||
| Total | $ | 525,398 | $ | 386,155 | $ | 223,750 | |||||||||||
The provision (benefit) for income taxes consists of the following:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (Amounts in thousands) | |||||||||||||||||
| Current: | |||||||||||||||||
| U.S. federal | $ | 25,597 | $ | 36,330 | $ | 24,766 | |||||||||||
| State and local | 6,591 | 5,055 | 5,018 | ||||||||||||||
| Foreign | 75,681 | 56,991 | 51,431 | ||||||||||||||
| Total current provision | 107,869 | 98,376 | 81,215 | ||||||||||||||
| Deferred: | |||||||||||||||||
| U.S. federal | 51,375 | (12,648) | 3,665 | ||||||||||||||
| State and local | 4,840 | (1,180) | (3,374) | ||||||||||||||
| Foreign | (8,488) | 381 | (62,944) | ||||||||||||||
| Total deferred provision (benefit) | 47,727 | (13,447) | (62,653) | ||||||||||||||
| Total: | |||||||||||||||||
| U.S. federal | 76,972 | 23,682 | 28,431 | ||||||||||||||
| State and local | 11,431 | 3,875 | 1,644 | ||||||||||||||
| Foreign | 67,193 | 57,372 | (11,513) | ||||||||||||||
| Total provision | $ | 155,596 | $ | 84,929 | $ | 18,562 | |||||||||||
The following table presents the Income taxes paid (net of refunds):
| Year Ended December 31, | ||||||||
| 2025 | ||||||||
| (Amounts in thousands) | ||||||||
| U.S. federal | $ | 11,500 | ||||||
| State and local | 7,621 | |||||||
| Foreign | ||||||||
| Austria | 4,867 | |||||||
| Germany | 6,653 | |||||||
| India | 13,404 | |||||||
| Saudi Arabia | 7,163 | |||||||
| Singapore | 7,013 | |||||||
| Spain | 6,805 | |||||||
| Other | 27,303 | |||||||
| Total | $ | 92,329 | ||||||
The provision for income taxes differs from the statutory corporate rate due to the following:
| Year Ended December 31, | |||||||||||
| 2025 | |||||||||||
| (Amounts in millions) | |||||||||||
| Amount | Percent | ||||||||||
| Statutory federal income tax at 21% | $ | 110.3 | 21.0 | % | |||||||
State and local income taxes, net of federal income tax effect (1) | 9.7 | 1.8 | |||||||||
| Nontaxable or nondeductible items | |||||||||||
| Nondeductible loss on asbestos divestiture | 27.1 | 5.2 | |||||||||
| Other | 0.5 | 0.1 | |||||||||
| Effect of cross-border tax laws | |||||||||||
| Global intangible low-taxed income | 23.1 | 4.4 | |||||||||
| Foreign branch income | 7.8 | 1.5 | |||||||||
| Other | 0.8 | 0.2 | |||||||||
| Tax credits | |||||||||||
| Foreign tax credits | (41.6) | (7.9) | |||||||||
| Other | (3.5) | (0.7) | |||||||||
| Changes in valuation allowances | 9.5 | 1.8 | |||||||||
| Effect of changes in tax laws or rates enacted in the current period | 13.6 | 2.6 | |||||||||
| Changes in unrecognized tax benefits | 3.9 | 0.7 | |||||||||
| Foreign tax effects | |||||||||||
| Argentina | |||||||||||
| Tax inflation adjustment | 6.8 | 1.3 | |||||||||
| Changes in valuation allowances | (11.2) | (2.1) | |||||||||
| Other | 4.2 | 0.8 | |||||||||
| Italy | |||||||||||
| Changes in valuation allowances | (6.0) | (1.1) | |||||||||
| Other | 6.5 | 1.2 | |||||||||
| Singapore | |||||||||||
| Statutory income tax rate differential | (6.0) | (1.1) | |||||||||
| Foreign tax credits | (6.6) | (1.3) | |||||||||
| Other | (1.9) | (0.4) | |||||||||
| Other foreign jurisdictions | 6.5 | 1.2 | |||||||||
| Other, net | 2.1 | 0.4 | |||||||||
| Effective tax rate | $ | 155.6 | 29.6 | % | |||||||
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(1)State taxes in Louisiana, Minnesota, Illinois, Texas, Tennessee, Pennsylvania, California, and New Jersey make up the majority (greater than 50%) of the tax effect of state and local income taxes, net of federal income tax effect.
| Year Ended December 31, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| (Amounts in millions) | ||||||||||||||
| Statutory federal income tax at 21% | $ | 81.1 | $ | 47.0 | ||||||||||
| Foreign impact, net | 63.5 | 10.4 | ||||||||||||
| Change in valuation allowances | (58.3) | (34.5) | ||||||||||||
| Research and development credit | (4.7) | (2.9) | ||||||||||||
| U.S. federal tax return to accrual adjustments, not separately disclosed in other categories | (0.9) | (4.8) | ||||||||||||
| Other, net | 4.2 | 3.4 | ||||||||||||
| Total | 84.9 | 18.6 | ||||||||||||
| Effective tax rate | 22.0 | % | 8.3 | % | ||||||||||
For the year ended December 31, 2024, the change in net foreign impact was driven mainly by the expiration of the 2019 Hungarian net operating loss that was fully offset in the change in valuation allowance by $54.2 million.
For the year ended December 31, 2023, the change in valuation allowances is driven mainly by the release of the valuation allowance against our deferred tax assets by $18.9 million in Brazil and $14.6 million in France. The Company determined that the net deferred tax assets in Brazil and France are realizable based on recent history of profitability and future income projections.
For the years ended December 31, 2025, 2024 and 2023 we have asserted indefinite reinvestment on certain earnings of our foreign subsidiaries. As of December 31, 2025, we have not recorded deferred tax liabilities associated with remaining unremitted earnings considered indefinitely reinvested, specifically related to foreign withholding taxes that would be due upon repatriation of the designated earnings to the U.S. Additionally, the calculation of the potential US tax consequences associated with the distribution of earnings currently deemed permanently reinvested is impracticable. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
Significant components of the consolidated deferred tax assets and liabilities were:
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| (Amounts in thousands) | |||||||||||
| Deferred tax assets related to: | |||||||||||
| Retirement benefits | $ | 28,737 | $ | 34,778 | |||||||
| Net operating loss carryforwards | 56,066 | 105,174 | |||||||||
| Compensation accruals | 39,673 | 37,785 | |||||||||
| Inventories | 39,668 | 29,764 | |||||||||
| Credit and capital loss carryforwards | 194,429 | 166,999 | |||||||||
| Warranty and accrued liabilities | 41,135 | 53,466 | |||||||||
Capitalized research and experimental expenditures | 23,676 | 67,206 | |||||||||
| Other | 79,559 | 81,600 | |||||||||
| Total deferred tax assets | 502,943 | 576,772 | |||||||||
| Valuation allowances | (238,719) | (250,841) | |||||||||
| Net deferred tax assets | $ | 264,224 | $ | 325,931 | |||||||
| Deferred tax liabilities related to: | |||||||||||
| Goodwill and intangibles | $ | (81,115) | $ | (81,241) | |||||||
| Other | (35,317) | (24,727) | |||||||||
| Total deferred tax liabilities | (116,432) | (105,968) | |||||||||
| Deferred tax asset (liabilities), net | $ | 147,792 | $ | 219,963 | |||||||
We had $280.1 million of U.S. and foreign net operating loss carryforwards at December 31, 2025. Of this total, $4.9 million are state net operating losses. State net operating losses generated in the U.S., if unused, will expire in 2027. $219.5 million of our foreign net operating losses carry forward without expiration. The remaining foreign net operating losses of $55.7 million that do not carry forward without expiration, if unused, will expire between 2026-2045. Additionally, we had $77.1 million of U.S. foreign tax credit carryforwards at December 31, 2025, that have a full valuation allowance (see discussion below), if unused, will expire between 2028-2035.
The following schedule presents the changes in deferred tax asset valuation allowance as follows:
| (Amounts in thousands) | Balance at beginning of year | Additions charged to cost and expenses | Additions charged to other accounts - currency effects and other, net | Deductions from reserve | Balance at end of year | |||||||||||||||||||||||||||
| Year Ended December 31, 2025 | ||||||||||||||||||||||||||||||||
| Deferred tax asset valuation allowance(1): | $ | 250,841 | $ | 26,964 | $ | 25,879 | $ | (64,965) | $ | 238,719 | ||||||||||||||||||||||
| Year Ended December 31, 2024 | ||||||||||||||||||||||||||||||||
| Deferred tax asset valuation allowance(1): | 347,672 | 6,964 | (37,286) | (66,509) | 250,841 | |||||||||||||||||||||||||||
| Year Ended December 31, 2023 | ||||||||||||||||||||||||||||||||
| Deferred tax asset valuation allowance(1): | 356,557 | 19,684 | 25,367 | (53,936) | 347,672 | |||||||||||||||||||||||||||
(1)Deductions from reserve result from the release of valuation allowances on deferred tax assets, expiration or utilization of net operating losses and foreign tax credits previously reserved. Additions to reserve result from the establishment of valuation allowances on deferred tax assets, generation of net operating losses and foreign tax credits.
The Company maintains a full valuation allowance against the net deferred tax assets in certain foreign jurisdictions as of December 31, 2025. As of each reporting date, management considers new evidence, both positive and negative that could affect its view of the future realization of net deferred tax assets. We assess our forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets in determining the sufficiency of our valuation allowances. Failure to achieve forecasted taxable income in the applicable tax jurisdictions could affect the ultimate realization of deferred tax assets and could result in an increase in our effective tax rate on future earnings. It is possible there may be sufficient positive evidence to release a portion of the remaining valuation allowance in those foreign jurisdictions. Release of the valuation allowance would result in a benefit to income tax expense for the period the release is recorded, which could have a material impact on net earnings. The timing and amount of the potential valuation allowance release are subject to significant management judgment and the level of profitability achieved.
Our valuation allowances primarily relate to the deferred tax assets for U.S. foreign tax credit carryforwards on foreign branch and general category income of $77.1 million, a foreign capital loss carryforward of $108.1 million, and other foreign deferred tax assets of $53.5 million. The foreign capital loss carryforward was the result of a reorganization of certain foreign subsidiaries in 2019. Due to its capital nature, it is more likely than not that the loss will not be utilized within its ten year carryforward period and, therefore, has a full valuation allowance.
A tabular reconciliation of the total gross amount of unrecognized tax benefits, excluding interest and penalties, is as follows (in millions):
| 2025 | 2024 | 2023 | |||||||||||||||
| Balance — January 1 | $ | 46.1 | $ | 46.2 | $ | 50.2 | |||||||||||
| Gross amount of increase (decrease) in unrecognized tax benefits resulting from tax positions taken: | |||||||||||||||||
| During a prior year | 0.4 | 0.1 | (9.1) | ||||||||||||||
| During the current period | 6.6 | 7.2 | 7.4 | ||||||||||||||
| Decreases in unrecognized tax benefits relating to: | |||||||||||||||||
| Settlements with taxing authorities | (4.3) | — | (2.8) | ||||||||||||||
| Lapse of the applicable statute of limitations | (2.4) | (1.9) | (1.4) | ||||||||||||||
| Increase (decrease) in unrecognized tax benefits relating to foreign currency translation adjustments | 4.8 | (5.5) | 1.9 | ||||||||||||||
| Balance — December 31 | $ | 51.2 | $ | 46.1 | $ | 46.2 | |||||||||||
The amount of gross unrecognized tax benefits at December 31, 2025, was $81.8 million, which includes $30.5 million of accrued interest and penalties. Of this amount $65.1 million, if recognized, would favorably impact our effective tax rate.
With limited exception, we are no longer subject to U.S. federal income tax audits for years through 2022, state and local income tax audits for years through 2019 or foreign income tax audits for years through 2018. We are currently under examination for various years in Canada, Chile, China, Germany, India, Indonesia, Italy, Kenya, Malaysia, Mexico, Philippines, Qatar, Singapore, Taiwan, the United States, and Venezuela.
On December 20, 2021, the Organisation for Economic Co-operation and Development (“OECD”) released the Model GloBE Rules for Pillar Two defining a 15% global minimum tax rate for large multinational corporations. Many countries continue to consider changes in their tax laws and regulations based on the Pillar Two proposals. We are continuing to evaluate the impact of these proposed and enacted legislative changes as new guidance becomes available. Some of these legislative changes could result in double taxation of our non-U.S. earnings, a reduction in the tax benefit received from our tax incentives, or other impacts to our effective tax rate and tax liabilities. As of December 31, 2025, the company is not expecting material impacts under currently enacted legislation.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 17, 2026 | Showing above |
| 2024 | Feb 26, 2025 | |
| 2023 | Feb 20, 2024 | |
| 2022 | Mar 7, 2023 | |
| 2021 | Feb 23, 2022 | |
| 2020 | Feb 23, 2021 | |
| 2019 | Feb 18, 2020 | |
| 2018 | Feb 20, 2019 | |
| 2017 | Feb 28, 2018 | |
| 2016 | Feb 16, 2017 | |
| 2015 | Feb 18, 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.