XML 31 R20.htm IDEA: XBRL DOCUMENT v3.10.0.1
Income Taxes
3 Months Ended
Sep. 30, 2018
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes

The effective tax rate for the three months ended September 30, 2018 and 2017 was 21.9% and 27.0%, respectively. The decrease in the effective tax rate is primarily due to the impacts of the Tax Cuts and Jobs Act ("the Act") in the three months ended September 30, 2018 partially offset by the impact of benefits recognized from a foreign exchange loss realized on a distribution from a foreign subsidiary, the release of reserves for uncertain tax positions, and the usage of foreign tax credits in the three months ended September 30, 2017.
The Act reduces the U.S. federal corporate income tax rate from 35% to 21%. In accordance with ASC 740 companies are required to re-measure deferred tax balances using the new enacted tax rates. The Act requires the Company to pay a one-time transition tax on earnings of the Company's foreign subsidiaries that were previously tax deferred for U.S. income taxes and creates new taxes on the Company's foreign sourced earnings. The Company included the estimated impact of the Act in accordance with Staff Accounting Bulletin No. 118, which provides guidance on accounting for the impact of the Act, in the Company's financial results for the year ended June 30, 2018.
Income tax expense reported for the three months ended September 30, 2018 includes a benefit of $1.1 million related to the Act. The $1.1 million is comprised of adjustments to the one-time transition tax and valuation allowance against the Company's foreign tax credits which may not be realized. The Act’s foreign tax credit provisions may limit the Company’s ability to utilize existing foreign tax credits in future periods, accordingly we have estimated that approximately $19.2 million could expire unutilized. The Company also accrued $28.3 million in the period ended June 30, 2018 related to foreign withholding taxes on future distributions of earnings and profits ("E&P") that may not be utilizable as foreign tax credits.
The accounting for the effects of the rate change on deferred tax balances is not complete and a provisional benefit of $253.3 million (restated for ASC 606) was recognized in the year ended June 30, 2018. During the three months ended September 30, 2018, the Company did not record an adjustment to this provisional amount. The Company is still analyzing certain aspects of the Act and refining calculations, which could potentially affect the re-measurement of these balances or potentially give rise to new deferred tax amounts.

The one-time transition tax is based on the total post-1986 E&P that was previously deferred from US income taxes. The Company recorded a provisional amount for the one-time transition tax liability of $22.2 million for the Company's foreign subsidiaries. The Company has not yet completed the calculation of the total post-1986 E&P for these foreign subsidiaries. Further, the transition tax is based in part on the amount of those earnings held in cash and other specified assets. This amount may change when the Company finalizes the calculation of post-1986 foreign E&P previously deferred from US federal taxation and finalizes the amounts held in cash or other specified assets.

During the three months ended September 30, 2018, the Company continued to evaluate and analyze its assessment of the Act which involves monitoring guidance from the U.S. tax authorities and refining tax return positions. The Company expects to complete its analysis and provisional estimates during the three months ended December 31, 2018 and record an adjustment to tax expense, if applicable.