Income Taxes

9 Months Ended

Sep. 30, 2024

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The Company's effective tax rate for the first nine months of 2024 was 467.1% compared with 67.6% in the first nine months of 2023 and 51.9% for the full year 2023. The increase in the effective tax rate in the first nine months of 2024 as compared with the rate for the full year 2023 is primarily due to the goodwill impairment charge of $53,694 that was recorded in the second quarter of 2024, which was not tax deductible for book purposes. Additional drivers in the effective tax rate in the first nine months of 2024, as compared with the full year 2023, include $23,688 of tax expense relating to the sale of the Businesses, including $6,794 of tax expense recorded during the first quarter of 2024 in conjunction with classifying the Businesses as “held for sale” as of March 31, 2024. After completion of the sale of the Businesses in the second quarter of 2024, the Company recognized the remainder of the tax expense relating to the sale of the Businesses of $16,894. Other items increasing the tax rate for the first nine months of 2024 include $7,400 of tax expense related to the Income Inclusion Rule under Pillar Two, as defined and discussed below, which significantly reduces the benefit from the tax holidays granted in Malaysia. Of the $7,400 recognized during the three months ended September 30, 2024, approximately $3,600 should have been recognized during the second quarter of 2024. The increase is partially offset by lower transaction costs capitalized for tax and a lower forecasted GILTI tax.

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 having begun, although the corresponding taxes are not currently payable until 2026. Under Pillar Two, the Income Inclusion Rule allows a country to look within its chain of ownership to entities not meeting the minimum tax rate requirement and include those results

within the tax filings of the parent entity. Luxembourg recently enacted the Income Inclusion Rule under Pillar Two, thereby allowing them to impose a 15% tax on the earnings of the Company's Malaysian Subsidiary, which was earlier granted a tax holiday (see below).

The Aerospace and Industrial segments have a number of multi-year tax holidays in China, Malaysia and Singapore. The tax holiday in China expired at the end of 2023. The Company has re-applied for approval of the potential three-year holiday but does not expect notification of 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.

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.