Income Taxes

6 Months Ended

Sep. 30, 2021

Income Taxes [Abstract]

Income Taxes

Note 9: Income Taxes

The Company’s effective tax rate for the three months ended September 30, 2021 and 2020 was 90.0 percent and 61.0 percent, respectively.  The Company’s effective tax rate for the six months ended September 30, 2021 and 2020 was 68.2 percent and 96.5 percent, respectively.

The effective tax rate for the second quarter of fiscal 2022 was negatively impacted by a $1.6 million income tax charge related to a valuation allowance established on deferred tax assets in a foreign jurisdiction.  The effective tax rate for the first six months of fiscal 2022, however, was positively impacted by a net $3.2 million income tax benefit related to valuation allowances on deferred tax assets in foreign jurisdictions.  Compared to the fiscal 2021 periods, the effective tax rates for the fiscal 2022 periods were negatively impacted by changes in the mix and amount of foreign and U.S. earnings.  The effective tax rates for the fiscal 2021 periods were negatively impacted by a $6.6 million income tax charge related to a valuation allowance on deferred tax assets in the U.S.

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 the Company’s analysis as of June 30, 2021, the Company determined it was more likely than not that the deferred tax assets in a foreign jurisdiction will be realized.  As a result, the need for the valuation allowance recorded thereon was eliminated and the Company recorded an income tax benefit of $ 4.8 million in the first quarter of fiscal 2022.  The Company’s analysis included consideration of the perimeter modifications for the liquid-cooled automotive business and the associated reversal of $7.4 million of impairment charges during the first quarter of fiscal 2022; see Note 2 for additional information.  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.  Combined, these fiscal 2022 valuation allowance adjustments resulted in a net income tax benefit of $3.2 million during the first six months of fiscal 2022.

Based upon the Company’s analysis as of September 30, 2020, the Company recorded an income tax charge of $6.6 million to increase its valuation allowance on certain U.S. deferred tax assets after determining it was more likely than not the deferred tax assets would not be realized based upon finalized foreign tax credit regulations enacted during the quarter.

As of September 30, 2021, valuation allowances against deferred tax assets in the U.S. and in certain foreign jurisdictions totaled $86.0 million and $11.4 million, respectively.  These totals exclude the full valuation allowances recorded for net deferred tax assets classified as held for sale. 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.

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 the U.S. and 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 2022.