Income Taxes

9 Months Ended

Oct. 03, 2025

Income Tax Disclosure [Abstract]

Income Taxes

NOTE 12. INCOME TAXES

For the third quarter of 2025, our effective income tax rate was 10.9%, as compared to 44.5% in the corresponding period in 2024. The decrease was primarily due to certain disallowed losses in 2024 related to the Mobility divestiture and, to a lesser extent, a one-time benefit from the revaluation of deferred tax liabilities resulting from the German tax rate decrease in the current quarter. For the first three quarters, our effective income tax rate was 17.7%, as compared to 25.9% in the prior year. The decrease was primarily due to gains from the Ag divestiture in 2024 and, to a lesser extent, the one-time deferred tax benefit mentioned above.

Unrecognized tax benefits of $42.2 million and $45.8 million at the end of the third quarter of 2025 and at the end of 2024, if recognized, would favorably affect the effective income tax rate in future periods. At the end of the third quarter of 2025 and at the end of 2024, we accrued interest and penalties of $9.6 million and $8.8 million.

The OBBBA, signed into law on July 4, 2025, includes changes to U.S. federal tax regulations. We have accounted for its tax implications during the second and third quarters based on our current interpretation of the legislation, and the impact to our tax rate is immaterial. The OBBBA permanently repeals the domestic R&D capitalization requirement. As a result, we expect cash tax reductions of approximately $32 million in 2025 and approximately $80 million in subsequent years. The Company continues to evaluate the impact of the OBBBA and currently believes it will not have a material impact on our effective income tax rate.