Income Taxes

12 Months Ended

Mar. 31, 2023

Income Taxes [Abstract]

Income Taxes

Note 8:  Income Taxes

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

	Years ended March 31,
	2023		2022		2021
Components of earnings (loss) before income taxes:
United States	$	12.5	$	0.4	$	(48.7	)
Foreign		112.8		101.1		(70.6	)
Total earnings (loss) before income taxes	$	125.3	$	101.5	$	(119.3	)

Income tax (benefit) provision:
Federal:
Current	$	1.5		$	0.1		$	(0.1	)
Deferred		(47.5	)		-			58.3
State:
Current		2.3			1.1			0.4
Deferred		(11.4	)		-			9.2
Foreign:
Current		27.5			17.8			22.0
Deferred		(0.7	)		(3.8	)		0.4
Total income tax (benefit) provision	$	(28.3	)	$	15.2		$	90.2

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

	Years ended March 31,
	2023			2022			2021
Statutory federal tax		21.0	%		21.0	%		21.0	%
State taxes, net of federal benefit		(0.1	)		1.4			0.9
Taxes on non-U.S. earnings and losses		5.8			3.5			(9.1	)
Valuation allowances		(42.9	)		(8.8	)		(92.9	)
Tax credits		(4.5	)		(3.4	)		2.2
Compensation		0.7			0.6			(1.3	)
Tax rate or law changes		(0.2	)		0.6			(0.2	)
Uncertain tax positions, net of settlements		0.4			(0.2	)		0.1
Notional interest deductions		(1.7	)		(2.7	)		1.3
Dividends and taxable foreign inclusions		0.9			1.6			3.0
Other		(2.0	)		1.4			(0.6	)
Effective tax rate		(22.6	%)		15.0	%		(75.6	%)

The Company’s fiscal 2023 effective tax rate was favorably impacted by an income tax benefit related to the valuation allowance on deferred tax assets in the U.S. The effective tax rates in both fiscal 2022 and 2021 were significantly impacted by impairment charges or reversals, largely related to the liquid-cooled automotive business, and income tax charges or benefits related to valuation allowances. See Note 2 for information regarding the impairment charges and reversals. The income tax charges or benefits related to valuation allowances are 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.

Since the third quarter of fiscal 2021, the Company has maintained a full valuation allowance against net deferred tax assets in the U.S. since the Company determined, at that time, it was more likely than not that the net deferred tax assets would not be realized. In the fourth quarter of fiscal 2023, based on the Company’s recent history of earnings, coupled with its forecasted profitability, the Company determined it was more likely than not that certain deferred tax assets in the U.S. will be realized. As a result, the Company reversed the valuation allowance related to these deferred tax assets and recorded an income tax benefit of $57.3 million. The Company evaluated both positive and negative objectively verifiable evidence and placed substantial weight on its fiscal 2022 and 2023 earnings, which resulted in a significant cumulative three-year income position. The Company also considered its forecasts for future earnings in certain key businesses. The Company has determined it is more likely than not that a portion of the deferred tax assets in the U.S. related to certain federal and state tax attributes will not be realized prior to expiration and, as such, has maintained a valuation allowance against these assets. In addition, the Company recorded a net increase of other deferred tax asset valuation allowances totaling $3.6 million.

Based upon its analyses during fiscal 2022, the Company determined it was more likely than not that the deferred tax assets in certain foreign jurisdictions would be realized. As a result, the Company reversed the valuation allowances related to these deferred tax assets and recorded income tax benefits totaling $13.0 million. The Company’s analyses included consideration of the transaction perimeter modification and the termination of the sale agreement for the liquid-cooled automotive business and the related impairment reversals. Separately, the Company determined it was more likely than not that the deferred tax assets in a foreign jurisdiction would not be realized. As a result, the Company recorded an income tax charge of $1.6 million. Together, these fiscal 2022 valuation allowance adjustments resulted in a net income tax benefit of $11.4 million during fiscal 2022. In addition, the Company recorded a net increase of other deferred tax asset valuation allowances totaling $2.5 million.

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 would not be realized. As a result, the Company recorded income tax charges totaling $116.5 million to increase the valuation allowances on deferred tax assets in the U.S. ($103.3 million) and in certain foreign jurisdictions ($13.2 million). The Company’s analyses during fiscal 2021 included consideration of the impairment charges recorded for the liquid-cooled automotive business, which 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. Also during fiscal 2021, the Company recorded a net increase of other deferred tax asset valuation allowances totaling $22.0 million and recorded a $9.3 million income tax benefit resulting from allocation of the income tax provision between net earnings and other comprehensive income.

At March 31, 2023, valuation allowances against deferred tax assets in the U.S. and in certain foreign jurisdictions totaled $33.9 million and $27.7 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 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,
	2023			2022
Deferred tax assets:
Accounts receivable	$	0.9		$	0.8
Inventories		6.0			6.5
Plant and equipment		17.2			19.9
Lease liabilities		15.9			13.5
Pension and employee benefits		24.1			27.5
Net operating and capital losses		55.4			53.9
Credit carryforwards		49.0			48.5
Research and experimental expenditures		8.0			-
Other, principally accrued liabilities		13.2			13.5
Total gross deferred tax assets		189.7			184.1
Less: valuation allowances		(61.6	)		(112.2	)
Net deferred tax assets		128.1			71.9
Deferred tax liabilities:
Plant and equipment		7.5			8.6
Lease assets		15.7			13.2
Goodwill		4.8			4.9
Intangible assets		20.1			22.4
Other		1.1			1.5
Total gross deferred tax liabilities		49.2			50.6
Net deferred tax assets	$	78.9		$	21.3

Unrecognized tax benefits were as follows:

	Years ended March 31,
	2023			2022
Beginning balance	$	9.3		$	9.6
Gross increases - tax positions in prior period		0.2			0.1
Gross decreases - tax positions in prior period		(0.1	)		(0.2	)
Gross increases - tax positions in current period		0.9			1.0
Lapse of statute of limitations		(0.6	)		(1.2	)
Ending balance	$	9.7		$	9.3

The Company’s liability for unrecognized tax benefits as of March 31, 2023 was $9.7 million and, if recognized, $7.8 million would have an effective tax rate impact. The Company estimates a $2.0 million net decrease in unrecognized tax benefits during fiscal 2024 mainly due to lapses in statutes of limitations. If recognized, these reductions would have an 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 2023, 2022 and 2021, interest and penalties included within income tax expense in the consolidated statements of operations were not significant. At March 31, 2023 and 2022, accrued interest and penalties totaled $0.8 million and $0.7 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, 2023, 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 2017 - Fiscal 2022
Italy	Fiscal 2018 - Fiscal 2022
United States	Fiscal 2020 - Fiscal 2022

At March 31, 2023, the Company had federal and state tax credits of $60.4 million that, if not utilized against U.S. taxes, will expire between fiscal 2024 and 2043. The Company also had state and local tax loss carryforwards totaling $136.7 million. If not utilized against state apportioned taxable income, certain state and local carryforwards will expire between fiscal 2024 and 2042, while some will not expire due to an unlimited carryforward period. In addition, the Company had tax loss and foreign attribute carryforwards totaling $285.0 million in various tax jurisdictions throughout the world. Certain of the carryforwards in foreign jurisdictions are offset by valuation allowances. If not utilized against taxable income, $54.9 million of these carryforwards will expire between fiscal 2024 and 2034, and $230.1 million, mainly related to 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 $12.0 million if the accumulated foreign earnings were distributed; however, the actual tax cost would be dependent on circumstances existing when remittance occurs.