Income Taxes

9 Months Ended

Mar. 31, 2022

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

The effective income tax rates for the three months ended March 31, 2022 and 2021 were 28.3 percent (provision on income) and 8.0 percent (benefit on income), respectively. The year-over-year change is due primarily to higher pretax income in the current year, discrete tax benefits recorded in the prior year quarter related to a provision to return adjustment and the recognition of a stranded deferred tax balance in accumulated other comprehensive loss arising from valuation allowance adjustments and enacted tax rate changes associated with the termination of forward starting interest rate cash flow hedges, and geographical mix.

The effective income tax rates for the nine months ended March 31, 2022 and 2021 were 27.2 percent (provision on income) and 84.6 percent (benefit on income), respectively. The year-over-year change is due primarily to higher pretax income in the current year, discrete tax benefits recorded in the prior year related to a favorable provision to return adjustment and the recognition of a stranded deferred tax balance in accumulated other comprehensive loss arising from valuation allowance adjustments and enacted tax rate changes associated with the termination of forward starting interest rate cash flow hedges, and geographical mix.

As of March 31, 2022, we have $25.2 million of U.S. net deferred tax assets, of which $56.0 million is related to net operating loss, tax credit, and other carryforwards that can be used to offset future U.S. taxable income. Certain of these carryforwards will expire if they are not used within a specified timeframe. At this time, we consider it more likely than not that we will have sufficient U.S. taxable income in the future that will allow us to realize these net deferred tax assets. However, it is possible that some or all of these tax attributes could ultimately expire unused, especially if our end markets do not continue to recover from the COVID-19 global pandemic. Therefore, if we are unable to generate sufficient U.S. taxable income from our operations, a valuation allowance to reduce the U.S. net deferred tax assets may be required, which would materially increase income tax expense in the period in which the valuation allowance is recorded.

Swiss tax reform

Swiss tax reform legislation was effectively enacted during the December quarter of fiscal 2020 when the Canton of Schaffhausen approved the Federal Act on Tax Reform and AHV Financing on October 8, 2019 (Swiss tax reform). Significant changes from Swiss tax reform include the abolishment of certain favorable tax regimes and the creation of a multi-year transitional period at both the federal and cantonal levels. The transitional provisions of Swiss tax reform allow companies to utilize a combination of lower tax rates and tax basis adjustments to fair value, which are used for tax depreciation and amortization purposes resulting in deductions over the transitional period. To reflect the federal and cantonal transitional provisions, as they apply to us, we recorded a deferred tax asset of $14.5 million during the three months ended December 31, 2020. We consider the deferred tax asset from Swiss tax reform to be an estimate based on our current interpretation of the legislation, which is subject to change based on further legislative guidance, review with the Swiss federal and cantonal authorities, and modifications to the underlying valuation. We anticipate finalization of the deferred tax asset within the next six months.