Income Taxes

6 Months Ended

Sep. 30, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Note 11 — Income Taxes

For the three and six months ended September 30, 2023, the Company recorded an income tax benefit of $93.1 million and $93.6 million, respectively, resulting in effective tax rates of 11% and 10%, respectively. The effective tax rates for such periods differed from the U.S. statutory rate primarily due to a valuation allowance recorded against the Company's U.S. net deferred tax assets during the second quarter of fiscal year 2024.

For the three and six months ended September 30, 2022, the Company recorded an income tax provision of $76.6 million and $53.8 million, respectively, resulting in effective tax rates of 1,104% and negative 99%, respectively. The effective tax rates for such periods differed from the U.S. statutory rate primarily due to the establishment of a valuation allowance on the deferred tax asset for California Research and Development (R&D) tax credits that was partially offset by the benefit of federal R&D tax credits.

During the second quarter of fiscal year 2024, in evaluating the Company’s ability to realize its U.S. net deferred tax assets, the Company considered all available positive and negative evidence, including but not limited to operating results, forecasted ranges of future taxable income, and its recent satellite anomalies. ASC 740 places more weight on the objectively verifiable evidence of current pre-tax losses and recent events than forecasts of future profitability. Therefore, the Company determined it is more likely than not that its U.S. net deferred tax assets will not be realized. As a result, the Company’s tax benefit for the three and six months ended September 30, 2023 was reduced by a valuation allowance recorded against its U.S. losses for the periods.

During the second quarter of fiscal year 2023, the Company determined it is more likely than not that a majority of its California R&D tax credits will not be realized due to reduced taxable income apportioned to California in connection with the Link-16 TDL Sale. As a result, during the second quarter of fiscal year 2023, the Company recorded a valuation allowance of $69.0 million against its R&D tax credit carryforwards.

The Company's total valuation allowance increased from $150.0 million at March 31, 2023 to $288.8 million at September 30, 2023 relating to carryforwards for federal, state, and foreign net operating losses, federal and state R&D tax credits, and foreign tax credits.

For the three and six months ended September 30, 2023, the Company’s gross unrecognized tax benefits increased by $4.6 million and $77.9 million, respectively, and interest and penalties decreased by $3.5 million and increased by $17.7 million, respectively. Of the total increases for the six months ended September 30, 2023, gross unrecognized tax benefits of $62.1 million and interest and penalties of $17.1 million were recorded through goodwill as part of the purchase accounting for the Inmarsat Acquisition. Of the total $207.6 million gross unrecognized tax benefits at September 30, 2023, $18.4 million would reduce the Company's annual effective tax rate if recognized based on the Company's valuation allowance position at September 30, 2023. Along with the other acquired tax attributes and positions, the unrecognized tax benefits are subject to adjustments during the measurement period, which may be up to one year from the acquisition date.