Income Taxes

12 Months Ended

Mar. 31, 2021

Income Taxes [Abstract]

Income Taxes

Note 8: Income Taxes

The U.S. and foreign components of loss or earnings before income taxes and the provision or benefit for income taxes consisted of the following:

	Years ended March 31,
	2021			2020			2019
Components of (loss) earnings before income taxes:
United States	$	(48.7	)	$	(26.1	)	$	22.4
Foreign		(70.6	)		36.5			58.4
Total (loss) earnings before income taxes	$	(119.3	)	$	10.4		$	80.8

Income tax provision (benefit):
Federal:
Current	$	(0.1	)	$	(3.4	)	$	(20.4	)
Deferred		58.3			(1.7	)		(4.2	)
State:
Current		0.4			(0.1	)		0.7
Deferred		9.2			(2.3	)		1.9
Foreign:
Current		22.0			14.9			19.0
Deferred		0.4			5.0			(2.1	)
Total income tax provision (benefit)	$	90.2		$	12.4		$	(5.1	)

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Act.  The Tax Act included a new provision designed to tax global intangible low taxed income (“GILTI”) starting in fiscal 2019.  The Company elected to record the tax effects of the GILTI provision as a period expense in the applicable tax year.  To determine whether its net operating loss carryforward deferred tax assets are expected to be realized, the Company considers the applicable tax law ordering.  Based upon this approach, net operating loss carryforwards are deemed to be realizable if they will reduce the expected tax liability when utilized, regardless of whether the 50% GILTI deduction or applicable tax credits may have been available.

The Company’s accounting policy is to allocate the income tax provision between net earnings and other comprehensive income.  The Company applies its accounting for income taxes by tax jurisdiction, and in periods in which there is a loss before income taxes and pre-tax income in other comprehensive income, it first allocates the income tax provision to other comprehensive income, and then records a related tax benefit in the income tax provision.

The reconciliation between the U.S. federal statutory rate and the Company’s effective tax rate was as follows:

	Years ended March 31,
	2021			2020			2019
Statutory federal tax		21.0	%		21.0	%		21.0	%
State taxes, net of federal benefit		0.9			(12.0	)		3.6
Taxes on non-U.S. earnings and losses		(9.1	)		32.9			3.9
Valuation allowances		(92.9	)		156.9			4.0
Tax credits		2.2			(36.7	)		(26.1	)
Compensation		(1.3	)		4.0			(0.1	)
Tax rate or law changes		(0.2	)		3.6			(12.0	)
Uncertain tax positions, net of settlements		0.1			(37.9	)		0.4
Notional interest deductions		1.3			(12.5	)		(2.5	)
Dividends and taxable foreign inclusions		3.0			(11.0	)		1.6
Other		(0.6	)		10.9			(0.1	)
Effective tax rate		(75.6	%)		119.2	%		(6.3	%)

During fiscal 2021, the Company’s effective tax rate was largely driven by both significant impairment charges and income tax charges related to valuation allowances.  See Note 2 for information regarding the impairment charges recorded during fiscal 2021.  The income tax benefits associated with these impairment charges totaled $24.4 million and $13.3 million in the U.S. and in certain foreign jurisdictions, respectively, and increased the deferred tax assets in the applicable jurisdictions.  The deferred tax assets, in turn, were evaluated for realizability, as further described below.

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 analyses during fiscal 2021, the Company determined it was more likely than not that its deferred tax assets in the U.S. and in certain foreign jurisdictions will not be realized in the future.  As a result, the Company recorded income tax charges totaling $116.5 million to increase the valuation allowance on deferred tax assets in the U.S. ($103.3 million) and in certain foreign jurisdictions ($13.2 million).  The majority of the U.S. tax charge was recorded in the third quarter of fiscal 2021, which established a full valuation on the U.S. deferred tax assets.  The Company’s analyses in the third quarter of fiscal 2021 included consideration of the impairment charges recorded in connection with the pending sale of the liquid-cooled automotive business; see Note 2 for additional information.  These impairment charges contributed to the Company entering into a three-year cumulative loss position in the U.S. and in certain foreign jurisdictions as of December 31, 2020.  The Company’s analyses as of December 31, 2020 also considered year-to-date taxable income, which had been negatively impacted by the COVID-19 pandemic and lower sales to data center cooling customers, and future projections of taxable income in the relevant jurisdictions.  After considering both the positive and negative evidence, the Company determined it is more likely than not that these deferred tax assets will not be realized.  Also during fiscal 2021, the Company recorded a net increase of deferred tax asset valuation allowances totaling $22.0 million and recorded a $(9.3) million income tax benefit resulting from the allocation of the income tax provision between net earnings and other comprehensive income, in accordance with the Company’s accounting policy described above.

During fiscal 2020, the Company recorded net income tax charges totaling $2.9 million as a result of legal entity restructuring completed in preparation of a potential sale of the liquid-cooled automotive business and a $1.4 million income tax benefit resulting from the recognition of a tax incentive in Italy.  Also in fiscal 2020, the Company changed its determination of whether it was more likely than not certain deferred tax assets in the U.S. and in a foreign jurisdiction would be realized and, as a result, adjusted the respective valuation allowances and recorded an income tax charge of $8.4 million and an income tax benefit of $1.3 million, respectively.  In addition, the Company recorded a net increase of deferred tax asset valuation allowances totaling $9.2 million and recorded a $4.5 million income tax benefit associated with the reduction in unrecognized tax benefits resulting from a lapse in statutes of limitations and settlements.

During fiscal 2019, the Company recorded income tax benefits totaling $14.5 million as a result of amending previous-year tax returns to recognize foreign tax credits that were expected to be realized based upon future sources of income and recorded a $(2.5) million income tax benefit related to a manufacturing deduction in the United States.  Shortly after the Tax Act was enacted, the SEC issued accounting guidance which provided a one-year measurement period during which a company could complete its accounting for the impacts of the Tax Act.  During fiscal 2019, the Company completed its accounting for the Tax Act, which resulted in an income tax benefit totaling $7.7 million.  The Company utilized its deferred tax attributes against the transition tax and finalized its fiscal 2018 U.S. federal income tax return.  As a result, the Company decreased the provisional charge recorded for the reduction in the U.S. federal corporate tax rate by $9.3 million, since more deferred tax assets were utilized to offset taxable income at a higher fiscal 2018 U.S. federal corporate tax rate.  The Company also decreased the transition tax liability to $18.9 million, a reduction of $0.1 million.  In addition, the Company recorded a charge of $1.7 million for a reduction to state deferred tax assets.  Also in fiscal 2019, the Company changed its determination of whether it was more likely than not certain deferred tax assets of two separate subsidiaries in a foreign jurisdiction would be realized and, as a result, adjusted the respective valuation allowances and recorded an income tax benefit totaling $1.0 million.  In addition, the Company recorded a net increase of deferred tax asset valuation allowances totaling $4.3 million and recorded a $2.2 million income tax benefit associated with the reduction in unrecognized tax benefits resulting from a lapse in statutes of limitations.

The Company has recorded valuation allowances against its net deferred tax assets to the extent it has determined it is more likely than not that such assets will not be realized in the future.  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.  As further discussed in Note 20, the COVID-19 pandemic has resulted in risks and uncertainties for the Company. 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.

The tax effects of temporary differences that gave rise to deferred tax assets and liabilities were as follows:

	March 31,
	2021			2020
Deferred tax assets:
Accounts receivable	$	0.3		$	0.3
Inventories		4.5			4.5
Plant and equipment		7.5			4.7
Lease liabilities		14.0			15.7
Pension and employee benefits		24.0			45.1
Net operating and capital losses		52.7			70.2
Credit carryforwards		51.8			56.8
Other, principally accrued liabilities		8.9			8.1
Total gross deferred tax assets		163.7			205.4
Less: valuation allowances		(90.7	)		(46.9	)
Net deferred tax assets		73.0			158.5
Deferred tax liabilities:
Plant and equipment		9.8			13.1
Lease assets		13.8			15.6
Goodwill		5.1			4.8
Intangible assets		25.1			26.4
Other		0.6			1.9
Total gross deferred tax liabilities		54.4			61.8
Net deferred tax assets	$	18.6		$	96.7

At March 31, 2021, the net deferred tax assets presented in the table above exclude deferred tax assets and liabilities classified as held for sale.  At March 31, 2021, the Company recorded a full valuation allowance for the net deferred tax assets of the held for sale businesses.  See Note 2 for additional information regarding the businesses held for sale.

Unrecognized tax benefits were as follows:

	Years ended March 31,
	2021			2020
Beginning balance	$	9.7		$	13.8
Gross increases - tax positions in prior period		0.1			0.3
Gross decreases - tax positions in prior period		(0.6	)		(1.0	)
Gross increases - tax positions in current period		0.9			1.1
Settlements		-			(2.1	)
Lapse of statute of limitations		(0.5	)		(2.4	)
Ending balance	$	9.6		$	9.7

The Company’s liability for unrecognized tax benefits as of March 31, 2021 was $9.6 million and, if recognized, $1.5 million would have an effective tax rate impact.  The Company estimates a $2.4 million decrease in unrecognized tax benefits during fiscal 2022 due to lapses in statutes of limitations and settlements.  If recognized, these reductions would not have a significant impact on the Company’s effective tax rate.

The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense.  During fiscal 2021 and 2020, interest and penalties included within income tax expense were not significant. At March 31, 2021 and 2020, accrued interest and penalties totaled $0.6 million and $0.5 million, respectively.

The Company files income tax returns in multiple jurisdictions and is subject to examination by taxing authorities throughout the world.  At March 31, 2021, the Company was under income tax examination in a number of jurisdictions.  The following tax years remain subject to examination for the Company’s major tax jurisdictions:

Germany	Fiscal 2015 - Fiscal 2020
Italy	Fiscal 2016 - Fiscal 2020
United States	Fiscal 2017 - Fiscal 2020

At March 31, 2021, the Company had federal and state tax credits of $60.5 million that, if not utilized against U.S. taxes, will expire between fiscal 2022 and 2041.  The Company also had state and local tax loss carryforwards totaling $135.8 million that, if not utilized against state apportioned taxable income, will expire between fiscal 2022 and 2041.  In addition, the Company had tax loss and foreign attribute carryforwards totaling $211.4 million in various tax jurisdictions throughout the world. Carryforwards in the U.S. and in certain foreign jurisdictions are offset by valuation allowances.  If not utilized against taxable income, $6.8 million of these carryforwards will expire between fiscal 2022 and 2034, and $204.6 million, mainly related to the U.S, Germany and Italy, will not expire due to an unlimited carryforward period.

The Company’s practice and intention is to reinvest, with certain insignificant exceptions, the earnings of its non-U.S. subsidiaries outside of the U.S., and therefore, the Company has not recorded foreign withholding taxes or deferred income taxes for these earnings.  The Company has estimated the net amount of unrecognized foreign withholding tax and deferred tax liabilities would total approximately $10.0 million if the accumulated foreign earnings were distributed; however, the actual tax cost would be dependent on circumstances existing when remittance occurs.