TIMKEN COTKR
TIMKEN CO Income Taxes Disclosure
Note 5 - Income Taxes
Income before income taxes, based on geographic location of the operations to which such earnings are attributable, is provided below. As the Company has elected to treat certain foreign subsidiaries as branches for U.S. income tax purposes, pretax income attributable to the United States shown below may differ from the pretax income reported in the Company’s annual U.S. federal income tax return.
Income before income taxes:
| 2025 | 2024 | 2023 | |||||||||
| United States | $ | 71.1 | $ | 175.6 | $ | 173.8 | |||||
| Non-United States | 344.9 | 318.6 | 356.7 | ||||||||
| Income before income taxes | $ | 416.0 | $ | 494.2 | $ | 530.5 | |||||
The provision for income taxes consisted of the following:
| 2025 | 2024 | 2023 | |||||||||
| Current: | |||||||||||
| Federal | $ | 34.4 | $ | 28.6 | $ | 10.4 | |||||
| State and local | 7.3 | 9.1 | 3.8 | ||||||||
| Foreign | 84.2 | 116.5 | 119.9 | ||||||||
| $ | 125.9 | $ | 154.2 | $ | 134.1 | ||||||
| Deferred: | |||||||||||
| Federal | $ | (17.0) | $ | (6.6) | $ | (12.1) | |||||
| State and local | (2.2) | (2.7) | (1.5) | ||||||||
| Foreign | (8.0) | (26.0) | 2.0 | ||||||||
| $ | (27.2) | $ | (35.3) | $ | (11.6) | ||||||
| United States and foreign tax provision on income | $ | 98.7 | $ | 118.9 | $ | 122.5 | |||||
Income taxes paid (net of refunds received):
| 2025 | 2024 | 2023 | |||||||||
| Federal | $ | 19.2 | $ | 58.8 | $ | 79.9 | |||||
| State and local | 8.2 | 5.9 | 9.3 | ||||||||
| Foreign | |||||||||||
| Brazil | 10.4 | * | * | ||||||||
| China | 32.1 | 37.2 | 52.4 | ||||||||
| France | 11.6 | * | 15.2 | ||||||||
| India | 25.0 | 23.3 | 25.9 | ||||||||
| Italy | 13.4 | * | 16.4 | ||||||||
| Mexico | 7.5 | * | * | ||||||||
| Others | 17.4 | 58.3 | 41.2 | ||||||||
| Total net income tax payments | $ | 144.8 | $ | 183.5 | $ | 240.3 | |||||
* Jurisdiction below the threshold for the periods presented.
These income tax payments included $45.2 million and $55.2 million in 2024 and 2023, respectively, for U.S. federal taxes that were recorded in other paid-in capital related to sale of shares of Timken India Limited.
Note 5 - Income Taxes (continued)
The following table is the reconciliation between the provision for income taxes and the amount computed by applying the U.S. federal income tax rate of 21% to income before taxes:
| 2025 | 2024 | 2023 | ||||||||||||||||||
| Amount | Percent | Amount | Percent | Amount | Percent | |||||||||||||||
| Income tax at the U.S. federal statutory rate | $ | 87.4 | 21.0 | % | $ | 103.8 | 21.0 | % | $ | 111.4 | 21.0 | % | ||||||||
State and local income taxes, net of federal income tax effect (1) | 3.3 | 0.8 | % | 4.5 | 0.9 | % | 3.7 | 0.7 | % | |||||||||||
| Foreign tax effects | ||||||||||||||||||||
| China | ||||||||||||||||||||
| Statutory rate difference between China and the United States | 4.1 | 1.0 | % | 3.2 | 0.6 | % | 6.0 | 1.1 | % | |||||||||||
| Withholding taxes | 5.3 | 1.3 | % | 4.8 | 1.0 | % | 20.0 | 3.8 | % | |||||||||||
| Other | 1.6 | 0.4 | % | 1.6 | 0.3 | % | 2.8 | 0.5 | % | |||||||||||
| India | ||||||||||||||||||||
| Withholding taxes | 6.4 | 1.5 | % | 3.4 | 0.7 | % | 3.6 | 0.7 | % | |||||||||||
| Other | 4.4 | 1.1 | % | 3.7 | 0.7 | % | 3.1 | 0.6 | % | |||||||||||
| Italy | ||||||||||||||||||||
| Adjustment to tax loss and carryforward | (6.0) | (1.4 | %) | — | — | % | — | — | % | |||||||||||
| Change in valuation allowance | (5.0) | (1.2 | %) | — | — | % | — | — | % | |||||||||||
| Other | 3.7 | 0.9 | % | 1.3 | 0.4 | % | (2.5) | (0.5 | %) | |||||||||||
| Other | 8.0 | 1.9 | % | 13.9 | 2.9 | % | 15.3 | 3.0 | % | |||||||||||
| Effect of cross-border tax laws | ||||||||||||||||||||
| Foreign-derived intangible income | (6.4) | (1.5 | %) | (4.0) | (0.8 | %) | (9.4) | (1.8 | %) | |||||||||||
| Subpart F | (2.5) | (0.5 | %) | (10.2) | (2.1 | %) | (42.6) | (8.0 | %) | |||||||||||
| Other | 2.9 | 0.5 | % | (4.0) | (0.8 | %) | 8.0 | 1.5 | % | |||||||||||
| Tax credits | (2.5) | (0.7 | %) | (3.3) | (0.7 | %) | (2.6) | (0.5 | %) | |||||||||||
| Changes in valuation allowances | 2.4 | 0.6 | % | 9.0 | 1.8 | % | 4.3 | 0.8 | % | |||||||||||
| Nontaxable or nondeductible items | 2.8 | 0.7 | % | (2.1) | (0.4 | %) | 4.5 | 0.8 | % | |||||||||||
| Changes in unrecognized tax benefits | (11.2) | (2.7 | %) | (6.7) | (1.4 | %) | (3.1) | (0.6 | %) | |||||||||||
| Effective income tax rate | $ | 98.7 | 23.7 | % | $ | 118.9 | 24.1 | % | $ | 122.5 | 23.1 | % | ||||||||
(1) State taxes in California, Illinois, Michigan, New Hampshire and Texas, made up the majority (greater than 50%) of tax expense in this category.
The Company recognized $55.8 million of tax benefits for U.S. foreign tax credit utilization primarily from acquisition integration structuring for the year ended December 31, 2023.
There has been no change in the Company’s assertion about its permanent reinvestment in undistributed foreign earnings. The Company recorded $1.1 million and $1.3 million of deferred income tax liabilities related to foreign withholding taxes on planned one-time distributions as of December 31, 2025 and 2024, respectively. No additional deferred taxes have been recorded for any other outside basis differences as these amounts continue to be indefinitely reinvested in foreign operations. It is not practicable to calculate additional taxes that might be payable on unremitted earnings due to the variety of circumstances and tax laws applicable at the time of distribution.
On July 4, 2025, the One Big Beautiful Bill Act ("OBBBA") was enacted in the U.S. The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act of 2017, modifications to the international tax framework and the restoration of favorable tax treatment for certain business provisions. The provisions in the OBBBA have multiple effective dates, with certain provisions effective in 2025 and others implemented through future years. The Company has included the impact of the provisions effective in 2025 on its Consolidated Financial Statements and the impact was not material to the Company's results of operations and financial condition.
Note 5 - Income Taxes (continued)
The Organization for Economic Co-operation and Development ("OECD") has a framework to implement a global minimum corporate tax of 15% applied on a country-by-country basis for companies with global revenues and profits above certain thresholds (referred to as "Pillar 2"), with certain aspects of Pillar 2 effective January 1, 2024 and other aspects effective January 1, 2025. While the United States has not enacted legislation to adopt Pillar 2, certain countries in which the Company operates have enacted such legislation. The enactment of Pillar 2 was not material to the Company’s results of operations and financial condition.
The effect of temporary differences giving rise to deferred tax assets and liabilities at December 31, 2025 and 2024 was as follows:
| 2025 | 2024 | |||||||
| Deferred tax assets: | ||||||||
| Accrued postretirement benefits cost | $ | 7.8 | $ | 7.9 | ||||
| Accrued pension cost | 41.4 | 39.3 | ||||||
| Other employee benefit accruals | 11.7 | 10.7 | ||||||
| Tax loss and credit carryforwards | 96.7 | 89.1 | ||||||
| Other, net | 72.7 | 75.9 | ||||||
| Valuation allowances | (45.3) | (48.7) | ||||||
| $ | 185.0 | $ | 174.2 | |||||
| Deferred tax liabilities - principally depreciation and amortization | (278.5) | (308.2) | ||||||
| Net deferred tax liabilities | $ | (93.5) | $ | (134.0) | ||||
The Company has U.S. federal and state tax credit and loss carryforwards with tax benefits totaling $26.7 million, portions of which will expire in 2026 and others continue until 2045. In addition, the Company has loss carryforwards in various non-U.S. jurisdictions with tax benefits totaling $68.4 million, portions of which will expire in 2026 while others will be carried forward indefinitely. The Company has provided valuation allowances of $45.3 million against certain of these carryforwards and deferred tax assets.
The following table provides a rollforward of the valuation allowance on deferred tax assets for the years ended December 31, 2025 and 2024:
| 2025 | 2024 | |||||||
| Beginning balance | $ | 48.7 | $ | 39.3 | ||||
| Charged to income tax expense | (0.1) | 11.7 | ||||||
| Reversal of valuation allowance | (6.8) | (0.9) | ||||||
| Foreign currency translation adjustments and other changes | 3.5 | (1.4) | ||||||
| Ending balance | $ | 45.3 | $ | 48.7 | ||||
As of December 31, 2025, the Company had $29.2 million of total gross unrecognized tax benefits, $27.5 million of which would favorably impact the Company’s effective income tax rate in any future period if such benefits were recognized. As of December 31, 2025, the Company had accrued $7.5 million of interest and penalties related to uncertain tax positions. The Company records interest and penalties related to uncertain tax positions as a component of income tax expense.
As of December 31, 2024, the Company had $35.8 million of total gross unrecognized tax benefits, $24.4 million of which would favorably impact the Company’s effective income tax rate in any future period if such benefits were recognized. As of December 31, 2024, the Company had accrued $11.8 million of interest and penalties related to uncertain tax positions. The Company records interest and penalties related to uncertain tax positions as a component of income tax expense.
Note 5 - Income Taxes (continued)
As of December 31, 2023, the Company had $34.2 million of total gross unrecognized tax benefits, $24.2 million of which would favorably impact the Company’s effective income tax rate in any future period if such benefits were recognized. As of December 31, 2023, the Company had accrued $11.8 million of interest and penalties related to uncertain tax positions. The Company records interest and penalties related to uncertain tax positions as a component of income tax expense.
The following table reconciles the Company’s total gross unrecognized tax benefits for the years ended December 31, 2025, 2024 and 2023:
| 2025 | 2024 | 2023 | |||||||||
| Beginning balance | $ | 35.8 | $ | 34.2 | $ | 26.0 | |||||
| Tax positions related to the current year: | |||||||||||
| Additions | 3.8 | 4.2 | 7.0 | ||||||||
| Tax positions related to prior years: | |||||||||||
| Additions | 4.1 | 4.5 | 9.6 | ||||||||
| Reductions | (1.1) | (1.6) | (4.7) | ||||||||
| Settlements with tax authorities | (4.1) | (0.1) | (0.4) | ||||||||
| Lapses in statutes of limitation | (9.3) | (5.4) | (3.3) | ||||||||
| Ending balance | $ | 29.2 | $ | 35.8 | $ | 34.2 | |||||
During 2025, gross unrecognized tax benefits decreased primarily for releases of accruals related to closing agreements and lapses in statute of limitations. These decreases were partially offset by accruals for uncertain tax positions related to current and prior year tax matters in multiple jurisdictions related to non-deductible expenses.
During 2024, gross unrecognized tax benefits increased primarily for accruals related to prior year tax matters in multiple jurisdictions related to acquisitions and non-deductible expenses. These increases were partially offset by releases of accruals related to closing agreements and lapses in statute of limitations.
During 2023, gross unrecognized tax benefits increased primarily for accruals related to prior year tax matters in multiple jurisdictions related to acquisitions and non-U.S. non-deductible expenses. These increases were partially offset by releases of accruals related to closing agreements and lapses in statute of limitations.
As of December 31, 2025, the Company is subject to examination by the IRS for tax years 2019 to the present. The Company also is subject to tax examination in various U.S. state and local tax jurisdictions for tax years 2018 to the present, as well as various foreign tax jurisdictions, including Mexico, China, France, India, Italy, Romania, Germany, Spain and Slovakia for tax years as early as 2003 to the present. The Company’s unrecognized tax benefits are presented on the Consolidated Balance Sheets as a component of other non-current liabilities, or in certain instances, as a reduction to deferred income taxes.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 13, 2026 | Showing above |
| 2024 | Feb 20, 2025 | |
| 2023 | Feb 26, 2024 | |
| 2022 | Feb 16, 2023 | |
| 2021 | Feb 15, 2022 | |
| 2020 | Feb 16, 2021 | |
| 2019 | Feb 14, 2020 | |
| 2018 | Feb 15, 2019 | |
| 2017 | Feb 15, 2018 | |
| 2016 | Feb 21, 2017 | |
| 2015 | Feb 24, 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.