Income Taxes |
9 Months Ended |
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Dec. 31, 2022 | |
| Income Taxes [Abstract] | |
| Income Taxes |
Note 8: Income Taxes
The Company’s effective tax rate for the three months ended December 31, 2022 and 2021 was 25.6 percent and 0.1 percent, respectively. The
Company’s effective tax rate for the nine months ended December 31, 2022 and 2021 was 23.8 percent and 8.7 percent, respectively.
The
effective tax rates for the fiscal 2022 periods were significantly impacted by the Company’s accounting for the liquid-cooled automotive business, which had been previously classified as held for sale. During the nine months ended December 31,
2021, the Company recorded net impairment reversals totaling $56.0 million related to this business, primarily driven by the
remeasurement of its property, plant and equipment assets upon reverting back to held and used classification during the third quarter of fiscal 2022. In addition, the effective tax rates for the third quarter and the first nine months of fiscal
2022 were favorably impacted by $8.2 million and $11.4 million, respectively, from income tax benefits related to valuation allowances on deferred tax assets in foreign jurisdictions, as further described below. See Note 1 for additional
information regarding the net impairment reversals related to the liquid-cooled automotive business.
The Company records valuation allowances
against its net deferred tax assets to the extent it determines it is more likely than not that such assets will not be realized in the future. Each quarter, the Company evaluates the probability that its deferred tax assets will be realized and
determines whether valuation allowances or adjustments thereto are needed. This determination involves judgement and the use of significant estimates and assumptions, including expectations of future taxable income and tax planning strategies. In
addition, the Company considers the duration of statutory carryforward periods and historical financial results.
Based upon its quarterly analyses in fiscal 2022, the Company determined it was more likely than not that the deferred tax assets in certain foreign jurisdictions will be
realized. As a result, the need for the valuation allowances recorded thereon was eliminated and the Company recorded income tax benefits of $4.8
million and $8.2 million during the first and third quarters of fiscal 2022, respectively. The Company’s analyses in these quarters
included consideration of the transaction perimeter modification during the first quarter and the termination of the sale agreement during the third quarter for the liquid-cooled automotive business and the related impairment reversals. In
addition, based upon the Company’s analysis as of September 30, 2021, the Company determined it was more likely than not that the deferred tax assets in a foreign jurisdiction will not be realized. As a result, the Company recorded an income tax
charge of $1.6 million in the second quarter of fiscal 2022, which partially offset the $13.0 million of income tax benefits recorded during the first and third quarters. Combined, these fiscal 2022 valuation allowance adjustments resulted in a net income tax
benefit of $11.4 million during the first nine months of fiscal 2022.
At December 31, 2022, valuation allowances against deferred tax assets in the U.S. and in certain foreign
jurisdictions totaled $84.9 million and $28.1 million, respectively. The Company will maintain the valuation allowances in each applicable tax jurisdiction until it determines it is more
likely than not the deferred tax assets will be realized, thereby eliminating the need for a valuation allowance. Future events or circumstances, such as lower taxable income or unfavorable changes in the financial outlook of the Company’s
operations in certain foreign jurisdictions, could necessitate the establishment of further valuation allowances. At present, the Company has recorded a full valuation allowance on its U.S. deferred tax assets. Based upon current and anticipated future
earnings in the U.S., the Company believes it is reasonably possible that in the fourth quarter of fiscal 2023 or in fiscal 2024, sufficient positive evidence may be available to conclude that a significant portion of the U.S. valuation allowance
is not needed. The Company estimates such valuation allowance release would result in a decrease to income tax expense of up to $65.0
million in the period recorded. However, the ultimate timing of such a release, if any, and the resulting decrease to income tax expense, could differ from the Company’s current estimates.
Accounting policies for interim reporting require the Company to adjust its effective tax rate each
quarter to be consistent with its estimated annual effective tax rate. Under this methodology, the Company applies its estimated annual income tax rate to its year-to-date ordinary earnings to derive its income tax provision each quarter. The
Company records the tax impacts of certain significant, unusual or infrequently occurring items in the period in which they occur. The Company excluded the impact of its operations in certain foreign locations from the overall effective tax rate
methodology and recorded them discretely based upon year-to-date results because the Company anticipates net operating losses for the full fiscal year in these jurisdictions. The Company does not anticipate a significant change in unrecognized tax
benefits during the remainder of fiscal 2023.
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