Income Taxes

9 Months Ended

Sep. 30, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income TaxesThe Company's effective tax rate for the first nine months of 2023 was 67.6% compared with 111.0% in the first nine months of 2022 and 64.7% for the full year 2022. The increase in the effective tax rate in the first nine months of 2023 as compared with the rate for the full year 2022 is primarily due to the recording of a valuation allowance on disallowed interest expense under Section 163(j) and an increase in GILTI tax, both significantly impacted by the MB Aerospace acquisition. The increase is also due to a decrease in earnings in 2023 related to MB Aerospace acquisition costs of which a portion are capitalized for tax purposes. The increase is offset by the absence of a goodwill impairment charge of $68,194, which was not tax deductible for book purposes.

The Aerospace and Industrial segments have a number of multi-year tax holidays in China, Malaysia and Singapore. The China holiday was granted in 2021 and provides for a corporate income tax of 15% for the approved businesses. The China holiday runs for a three-year period ending December 31, 2023. It is anticipated that the Company will re-apply for the China holiday in 2024. The Aerospace segment was granted an income tax holiday for operations recently established in Malaysia. The Malaysia holiday commenced effective November 2020 (retroactively) and remains effective for a period of ten years. The Aerospace business was granted additional tax holidays in Singapore under the Pioneer program in the fourth quarter of 2022. The Singapore holiday provides reduced tax rates for certain Aerospace programs manufactured at the Singapore location and will run through December 2025. All of the holidays are subject to the Company meeting certain commitments in the respective jurisdictions.

In October 2021, the Organization for Economic Co-operation and Development ("OECD") introduced an inclusive framework to address tax challenges arising from the digitalization of the economy through a two-pillar solution. One of the components of the solution is the implementation of a global minimum corporate tax rate of 15% for large multinational corporations (“Pillar Two”). The OECD continues to release additional guidance on the two-pillar solution with implementation to begin in 2024 while reporting of the tax applicable will not occur until 2026.

On August 31, 2023, the Company completed its acquisition of MB Aerospace by acquiring all of the issued and outstanding shares of capital stock of MB Aerospace Holdings Inc., a Delaware corporation, in a taxable stock transaction. For accounting purposes, the assets and liabilities of MB Aerospace have been stepped up to fair market value which require the recording of deferred taxes on the associated step up. The Company has also determined that it is unlikely to recognize a tax benefit associated with MB Aerospace disallowed interest, net operating loss and credit carryforwards. As a result, the Company has booked a valuation allowance associated with these carryforwards. Additionally, the Company evaluated the impact of the MB Aerospace acquisition on the deferred tax assets of the Company. The Company determined that it was unlikely to be able to utilize legacy disallowed interest carryforwards and has recorded a corresponding valuation allowance. The Company will continue to evaluate associated Pillar Two impacts, and how they will be applied within the combined group of companies.

In August 2022, the U.S. government enacted tax legislation commonly referred to as the Inflation Reduction Act of 2022 (“IRA”) into law. The IRA will impose a 1% excise tax on the fair market value of certain stock repurchased by a public traded company after December 31, 2022 and restored and modified certain tax-related energy incentives. The Company does not anticipate a material impact on our business, financial condition, results of operations or cash flow as a result of this change.