Income Taxes

9 Months Ended

Dec. 31, 2023

Income Taxes [Abstract]

Income Taxes

Note 9: Income Taxes

The Company’s effective tax rate for the three months ended December 31, 2023 and 2022 was 18.6 percent and 25.6 percent, respectively. The Company’s effective tax rate for the nine months ended December 31, 2023 and 2022 was 21.6 percent and 23.8 percent, respectively. The effective tax rates for fiscal 2024 are lower than the prior year, primarily due to changes in the mix and amount of foreign and U.S. earnings. The effective tax rates for the fiscal 2024 periods were also favorably impacted by a $3.1 million tax benefit related to the sale of three automotive businesses based in Germany during the third quarter. See Note 2 for additional information regarding the sale. In addition, the effective tax rate for the first nine months of fiscal 2024 was favorably impacted by the release of a $1.8 million unrecognized tax benefit during the second quarter, due to a lapse in statute of limitations.

The Company records valuation allowances against its net deferred tax assets to the extent it determines it is more likely than not that such assets will not be realized in the future.  Each quarter, the Company evaluates the probability that its deferred tax assets will be realized and determines whether valuation allowances or adjustments thereto are needed.  This determination involves judgment and the use of significant estimates and assumptions, including expectations of future taxable income and tax planning strategies.  In addition, the Company considers the duration of statutory carryforward periods and historical financial results.

At December 31, 2023, valuation allowances against deferred tax assets in the U.S. and in certain foreign jurisdictions totaled $38.4 million and $16.3 million, respectively.  The Company will maintain the valuation allowances in each applicable tax jurisdiction until it determines it is more likely than not the deferred tax assets will be realized, thereby eliminating the need for a valuation allowance.  Future events or circumstances, such as lower taxable income or unfavorable changes in the financial outlook of the Company’s operations in the U.S. and certain foreign jurisdictions, could necessitate the establishment of further valuation allowances.

Accounting policies for interim reporting require the Company to adjust its effective tax rate each quarter to be consistent with its estimated annual effective tax rate.  Under this methodology, the Company applies its estimated annual income tax rate to its year-to-date ordinary earnings to derive its income tax provision each quarter.  The Company records the tax impacts of certain significant, unusual or infrequently occurring items in the period in which they occur.  In addition, the Company excludes the impact of operations anticipated to generate net operating losses for the full fiscal year from the overall effective tax rate calculation and instead records them discretely based upon year-to-date results.  The Company does not anticipate a significant change in unrecognized tax benefits during the remainder of fiscal 2024.