EnerSys

14. Income Taxes

Earnings before income taxes consists of the following:

Income taxes paid by the Company for the fiscal years ended March 31, 2024, 2023 and 2022 were $28,810, $46,309 and $50,484, respectively.

The following table sets forth the tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities:

The Company has approximately $539 in United States federal net operating loss carryforwards, all of which are limited by Section 382 of the Internal Revenue Code, with expirations between 2024 and 2028. The Company has approximately $211,489 of foreign net operating loss carryforwards, of which $111,526 may be carried forward indefinitely and $99,963 expire between fiscal 2024 and fiscal 2042. In addition, the Company also has approximately $25,646 of state net operating loss carryforwards with expirations between fiscal 2024 and fiscal 2043.

The following table sets forth the changes in the Company's valuation allowance for fiscal 2024, 2023 and 2022:

(1)Includes the impact of currency changes and the expiration of net operating losses for which a full valuation allowance was recorded.

As of March 31, 2024 and 2023, the Company hadno federal valuation allowance and the valuation allowance associated with the state tax jurisdictions was $535 and $343, respectively.

As of March 31, 2024 and 2023, the valuation allowance associated with certain foreign tax jurisdictions was $35,219 and $30,829, respectively. Of the net increase of $4,389, $6,656 was recorded as an increase to tax expense primarily related to deferred tax assets generated in the current year that the Company believes are not more likely than not to be realized, offset by $(2,267) primarily related to foreign currency translation adjustments and expiration of foreign net operating losses for which a full valuation allowance was recorded.

A reconciliation of income taxes at the statutory rate (21.0% for fiscal 2024, 2023 and 2022) to the income tax provision is as follows:

The effective income tax rates for the fiscal years ended March 31, 2024, 2023 and 2022 were 7.9%,16.5% and 17.3%, respectively. The effective income tax rate with respect to any period may be volatile based on the mix of income in the tax jurisdictions in which the Company operates and the amount of its consolidated income before taxes. The rate decrease in fiscal 2024 compared to fiscal 2023 is primarily due to the impact of IRA offset by changes in mix of earnings among tax jurisdictions. The rate decrease in fiscal 2023 compared to fiscal 2022 is primarily due to the impact of IRA offset by changes in mix of earnings among tax jurisdictions.

In fiscal 2024, the foreign effective income tax rate on foreign pre-tax income of $192,955 was 13.8%. In fiscal 2023, the foreign effective income tax rate on foreign pre-tax income of $171,936 was 16.8% and in fiscal 2022, the foreign effective income tax rate on foreign pre-tax income of $152,068 was 11.0%.The rate decrease in fiscal 2024 compared to fiscal 2023 is primarily due to additional income taxes recorded on undistributed earnings in fiscal 2023 and changes in mix of earnings among tax jurisdictions. The rate increase in fiscal 2023 compared to fiscal 2022 is primarily due to a reduction in favorable permanent items and changes in mix of earnings among tax jurisdictions.

Income from the Company's Swiss subsidiary comprised a substantial portion of its overall foreign mix of income for the fiscal years ended March 31, 2024, 2023 and 2022 and was taxed, excluding the impact from the Swiss tax reform, at approximately 9%,7% and 4%, respectively.

The Company has approximately $1,352,000 and $1,340,000 of undistributed earnings of foreign subsidiaries for fiscal years 2024 and 2023, respectively. A small portion of the above earnings were no longer considered indefinitely reinvested, as a result, the Company recorded additional income taxes in prior years. The Company intends to continue to be indefinitely reinvested on the remaining undistributed foreign earnings and outside basis differences and therefore, no additional income taxes have been provided.

Uncertain Tax Positions

The following table summarizes activity of the total amounts of unrecognized tax benefits:

All of the balance of unrecognized tax benefits at March 31, 2024, if recognized, would be included in the Company’s Consolidated Statements of Income and have a favorable impact on both the Company’s net earnings and effective tax rate.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions and is routinely subject to income tax examinations. As of March 31, 2024, the most significant tax examinations in process are the United States and Switzerland. The Company regularly assesses the likely outcomes of its tax audits and disputes to determine the appropriateness of its tax reserves. However, any tax authority could take a position on tax treatment that is contrary to the Company’s expectations, which could result in tax liabilities in excess of reserves. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2009.

While the net effect on total unrecognized tax benefits cannot be reasonably estimated, approximately $533 is expected to reverse in fiscal 2024 due to expiration of various statute of limitations.

The Company recognizes tax related interest and penalties in income tax expense in its Consolidated Statements of Income. As of March 31, 2024 and 2023, the Company had an accrual of $455 and $435, respectively, for interest and penalties.