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Income Taxes
9 Months Ended
Mar. 31, 2018
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes
 
The effective tax rate used for interim periods is the estimated annual effective consolidated tax rate, based on the current estimate of full year results, except that taxes related to specific events, if any, are recorded in the interim period in which they occur. The annual effective tax rate is based upon a number of significant estimates and judgments, including the estimated annual pre-tax income of the Company in each tax jurisdiction in which it operates, and the development of tax planning strategies during the year. In addition, the Company’s tax expense can be impacted by changes in tax rates or laws, the finalization of tax audits, and other factors that cannot be predicted with certainty. As such there can be significant volatility in interim tax provisions.
 
Income tax expense for the three months ended March 31, 2018 was $7.5 million, or 19.9 percent of pre-tax income as compared with $8.4 million, or 28.9 percent of pre-tax income for the three months ended March 31, 2017. Income tax expense for the nine months ended March 31, 2018 was a benefit of $39.1 million or negative 36.7 percent of pre-tax income as compared with expense of $10.6 million, or 33.0 percent of pre-tax income for the nine months ended March 31, 2017.

An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018 (the “Act”) was enacted on December 22, 2017. The Act includes provisions that reduce the federal corporate income tax rate, create a territorial tax system with a one-time mandatory tax on previously deferred foreign earnings (i.e. transition tax), and change certain business deductions including allowing for immediate expensing of certain qualified capital expenditures and limitations on deductions of interest expense. The permanent reduction to the U.S. federal corporate income tax rate from 35 percent to 21 percent was effective January 1, 2018. Based on the provisions of the Act, the Company’s estimated annual effective tax rate was adjusted to incorporate the lower federal tax rate that will be phased in for fiscal year 2018. During the quarter ended March 31, 2018, the Company recorded discrete income tax net benefits of $1.6 million. Included in this benefit are a $0.9 million tax benefit to reflect adjustments to the provisional amount previously recorded for the impact of the re-measurement of deferred tax assets and liabilities at the reduced federal tax rate, $0.2 million expense for adjustments to the provisional amount previously recorded for the transition tax and an income tax benefit of $0.9 million for reductions in certain state valuation allowances for deferred tax assets resulting from the impact of the Act. The Company recorded discrete income tax net benefits of $67.6 million during the nine months ended March 31, 2018. Included in this benefit are $74.2 million tax benefit to reflect the impact of the re-measurement of deferred tax assets and liabilities at the reduced federal tax rate, $5.3 million expense for the transition tax and income tax expense of $1.3 million for increases in certain state valuation allowances for deferred tax assets resulting from the impact of a state law change that will limit the Company’s ability to utilize state net operating loss carryforwards partially offset by the impact of limitations on interest expense as a result of the Act.

The Company determined that the amounts recorded for the transition tax are provisional because various components of the computation are not yet finalized as of March 31, 2018, including the following significant items: the actual aggregate foreign cash position and the earnings and profits of the foreign entities as of June 30, 2018, the interpretation and identification of cash positions as of June 30, 2018, and computations of accumulated earnings and profits balances as of November 2, 2017 and December 31, 2017. Under the Act, the transition tax will be paid over an eight year period beginning in fiscal year 2019.

The Company also determined that the re-measurement of deferred tax assets and liabilities at the lower federal corporate income tax rate is provisional until such time that the underlying temporary differences are known rather than estimated.

Future adjustments to the provisional amounts related to the Act will be recorded as discrete adjustments to income tax expense in the period in which those adjustments are determined.
 
Income tax expense for the nine months ended March 31, 2017 includes tax benefits of $0.9 million associated with the repatriation of earnings from one of our foreign subsidiaries. Income tax expense also includes a $0.3 million benefit primarily due to additional research and development credits claimed in the prior year.

In October 2016, the Company made a voluntary pension contribution of $100.0 million that was announced in connection with the plan freeze.  As a result of the pension contribution, income tax expense in the nine months ended March 31, 2017 included a discrete tax charge of $2.1 million due to reduced tax benefits for domestic manufacturing claimed in prior periods.

As of June 30, 2017, the Company had $99.1 million of indefinitely reinvested foreign earnings for which deferred income taxes had not been provided.  Given the Act’s significant changes and potential opportunities to repatriate cash tax free, the Company is in the process of evaluating its assertions for indefinite reinvestment.