Income Taxes

3 Months Ended

Mar. 31, 2024

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The Company's effective tax rate for the first three months of 2024 was 85.2% compared with 20.9% in the first three months of 2023 and 51.9% for the full year 2023. The increase in the effective tax rate during the first three months of 2024, as compared with the rate for the full year 2023, is driven primarily by the inclusion of $6,794 of tax expense (rate impact of 51.6%) relating to the Sale of the Associated Spring and Hanggi businesses. The Company determined during the first quarter of 2024, in conjunction with the Sale, that its investment in a certain disposed foreign subsidiary no longer met the classification as "permanently reinvested". The Company has therefore recognized income taxes related to this entity as of March 31, 2024, in advance of the completion of the Sale on April 4, 2024.

The Aerospace and Industrial segments have a number of multi-year tax holidays in Malaysia and Singapore. The tax holiday in China expired at the end of 2023. The Company plans to re-apply for approval of a potential three-year holiday in China but, under China rules, cannot file the application until after June 2024 and does not expect a decision regarding approval of the holiday until the end of 2024. Aerospace was granted an income tax holiday for operations recently established in Malaysia. This 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. This holiday provides reduced tax rates for certain Aerospace programs manufactured at the Singapore location and will continue 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. As of the first quarter of 2024, the Company does not anticipate any additional taxes in 2024 relating to the implementation of Pillar Two.

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 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 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.