EnerSys

15. Income Taxes

Earnings before income taxes consists of the following:

Income taxes paid by the Company for the fiscal years ended March 31, 2025, 2024 and 2023 were $40,410, $28,810 and $46,309, 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 $359 in United States federal net operating loss carryforwards, all of which are limited by Section 382 of the Internal Revenue Code, with expirations between fiscal 2025 and fiscal 2028. The Company has approximately $155,259 of foreign net operating loss carryforwards, of which $110,599 may be carried forward indefinitely and $44,660 expire between fiscal 2025 and fiscal 2043. In addition, the Company also has approximately $18,806 of state net operating loss carryforwards with expirations between fiscal 2028 and fiscal 2045.

The following table sets forth the changes in the Company's valuation allowance for fiscal 2025, 2024 and 2023:

(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, 2025 and 2024, the Company hadno federal valuation allowance and the valuation allowance associated with the state tax jurisdictions was $468 and $535, respectively.

As of March 31, 2025 and 2024, the valuation allowance associated with certain foreign tax jurisdictions was $25,126 and $35,219, respectively. Of the net decrease of $(10,093), $(4,203) was recorded as a decrease to tax expense primarily related to deferred tax assets utilized in the current year that were previously not more likely than not to be realized, and by $(5,890) 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 2025, 2024 and 2023) to the income tax provision is as follows:

The Organization for Economic Co-operation and Development (OECD) has a global minimum corporate tax of 15% for companies with global revenues and profits above certain thresholds (referred to as Pillar 2), with certain aspects of Pillar 2 effective for taxable years beginning after December 31, 2023. While it is uncertain whether the U.S. will enact legislation to adopt Pillar 2, certain countries in which we operate have adopted legislation, and other countries are in the process of introducing legislation to implement Pillar 2. The impact to the Company is not material in the current year.

On August 26, 2024, the U.S. Tax Court issued a ruling in Varian Medical Systems, Inc. v. Commissioner ("Varian"). The ruling related to the U.S. taxation of deemed foreign dividends in the transition tax of the Tax Cuts and Jobs Act (“Tax Act”) which was originally recorded in fiscal 2018. The impact of the enacted legislation and ruling is included in our fiscal year results. The Company will continue to monitor and evaluate as new legislation and guidance is issued.

In fiscal 2025 the Company entered into a cost sharing arrangement and platform contribution transaction (“IP Transaction”) related to certain intellectual property between the EnerSys U.S. and a Swiss subsidiary. Although the transaction between consolidated entities did not result in any gain in the consolidated statement of operations, the Company recorded a net tax expense of approximately $2,500 primarily due to the difference in the tax rate between the US and Switzerland. The net expense represents the tax recognized by the selling jurisdiction offset by the value of future tax deductions for amortization of the assets in the acquiring jurisdiction.

The effective income tax rates for the fiscal years ended March 31, 2025, 2024 and 2023 were 10.5%,7.9% and 16.5%, 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 increase in fiscal 2025 compared to fiscal 2024 is primarily due to the impact of Pillar 2, IP Transaction, and mix of earnings among tax jurisdictions offset by the impact of Varian. 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.

In fiscal 2025, the foreign effective income tax rate on foreign pre-tax income of $205,245 was 0.1%. In fiscal 2024, the foreign effective income tax rate on foreign pre-tax income of $192,955 was 13.8% and in fiscal 2023, the foreign effective income tax rate on foreign pre-tax income of $171,936 was 16.8%. The rate decrease in fiscal 2025 compared to fiscal 2024 is primarily due the IP Transaction offset by changes in mix of earnings among tax jurisdictions. 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.

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, 2025, 2024 and 2023 and was taxed at approximately (13)%,9% and 7%, respectively. The rate decrease in fiscal 2025 compared to fiscal 2024 is primarily related to the IP Transaction.

The Company has approximately $1,342,000 and $1,352,000 of undistributed earnings of foreign subsidiaries for fiscal years 2025 and 2024, 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, 2025, 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, 2025, 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 $668 is expected to reverse in fiscal 2026 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, 2025 and 2024, the Company had an accrual of $455 and $455, respectively, for interest and penalties.