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Income Taxes
 12 Months Ended
Dec. 31, 2024
Income Tax Disclosure [Abstract]  
Income Taxes
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:
  
202420232022
United States$175.6 $173.8 $86.0 
Non-United States318.6 356.7 464.9 
Income before income taxes$494.2 $530.5 $550.9 
The provision for income taxes consisted of the following:
202420232022
Current:
Federal$28.6 $10.4 $11.2 
State and local9.1 3.8 6.7 
Foreign116.5 119.9 119.6 
$154.2 $134.1 $137.5 
Deferred:
Federal$(6.6)$(12.1)$(7.8)
State and local(2.7)(1.5)(0.3)
Foreign(26.0)2.0 4.5 
 $(35.3)$(11.6)$(3.6)
United States and foreign tax provision on income$118.9 $122.5 $133.9 
The Company made net income tax payments of $183.5 million, $240.3 million and $120.6 million in 2024, 2023 and 2022, respectively. These income tax payments included $45.2 million and $55.2 million in 2024 and 2023, respectively, that were recorded in other paid-in capital related to sale of shares of Timken India Limited.
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:
202420232022
Income tax at the U.S. federal statutory rate$103.8 $111.4 $115.7 
Adjustments:
State and local income taxes, net of federal tax benefit4.9 5.3 5.3 
Tax on foreign remittances and U.S. tax on foreign income16.8 25.6 19.0 
Tax expense related to undistributed earnings of foreign subsidiaries1.3 15.0 1.0 
Foreign losses without current tax benefits6.1 7.7 3.1 
Foreign earnings taxed at different rates including tax holidays16.6 18.1 19.4 
U.S. foreign tax credit(21.1)(55.8)(15.2)
Effect of cross-border tax laws(5.2)(10.3)(3.9)
Accruals and settlements related to tax audits(6.7)(3.2)(9.5)
Other items, net2.4 8.7 (1.0)
 Provision for income taxes$118.9 $122.5 $133.9 
Effective income tax rate24.1 %23.1 %24.3 %
Note 5 - Income Taxes (continued)
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 $1.3 million and $15.0 million of income tax expense related to foreign withholding taxes on planned one-time distributions for the years ended December 31, 2024 and 2023, 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. The amounts of undistributed foreign earnings were $1,834.6 million and $1,608.8 million at December 31, 2024 and December 31, 2023, respectively. It is not practicable to calculate the additional taxes that might be payable on such unremitted earnings due to the variety of circumstances and tax laws applicable at the time of distribution.
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, and it is uncertain if it will do so in the future, certain countries in which the Company operates have enacted such legislation, and other countries are in the process of doing so. 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, 2024 and 2023 was as follows:
20242023
Deferred tax assets:
Accrued postretirement benefits cost$7.9 $8.0 
Accrued pension cost39.3 44.1 
Other employee benefit accruals10.7 14.3 
Tax loss and credit carryforwards89.1 84.9 
Other, net75.9 58.3 
Valuation allowances(48.7)(39.3)
$174.2 $170.3 
Deferred tax liabilities - principally depreciation and amortization(308.2)(312.5)
Net deferred tax liabilities$(134.0)$(142.2)
The Company has U.S. federal and state tax credit and loss carryforwards with tax benefits totaling $23.3 million, portions of which will expire in 2024 and continue until 2043. In addition, the Company has loss carryforwards in various non-U.S. jurisdictions with tax benefits totaling $64.5 million, portions of which will expire in 2025 while others will be carried forward indefinitely. The Company has provided valuation allowances of $47.9 million against certain of these carryforwards and $0.8 million against other deferred tax assets. A majority of the non-U.S. loss carryforwards represent local country net operating losses for branches of the Company or entities treated as branches of the Company under U.S. tax law for which deferred taxes have been recorded.
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 believes it is reasonably possible that the amount of unrecognized tax positions could decrease by approximately $9 million during the next 12 months. The potential decrease would primarily be driven by settlements with tax authorities and the expiration of various applicable statutes of limitation. 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 believed it was reasonably possible that the amount of unrecognized tax positions could decrease by approximately $5 million during the next 12 months. The potential decrease would primarily be driven by settlements with tax authorities and the expiration of various applicable statutes of limitation. 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.
As of December 31, 2022, the Company had $26.0 million of total gross unrecognized tax benefits, $23.3 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, 2022, the Company had accrued $8.8 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, 2024, 2023 and 2022:
202420232022
Beginning balance, January 1$34.2 $26.0 $36.1 
Tax positions related to the current year:
Additions4.2 7.0 0.6 
Tax positions related to prior years:
Additions4.5 9.6 4.0 
Reductions(1.6)(4.7)(4.7)
Settlements with tax authorities(0.1)(0.4)(1.9)
Lapses in statutes of limitation(5.4)(3.3)(8.1)
Ending balance, December 31$35.8 $34.2 $26.0 
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.
During 2022, gross unrecognized tax benefits decreased primarily for releases of accruals related to lapses in statute of limitations and reductions related to foreign currency for non-U.S. positions. These decreases were partially offset by accruals for uncertain tax positions related to prior year tax matters in multiple jurisdictions related to acquisitions.
As of December 31, 2024, 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 2017 to the present, as well as various foreign tax jurisdictions, including Mexico, China, Poland, 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.