Income Taxes

12 Months Ended

Jun. 30, 2018

Income Tax Disclosure [Abstract]

Income Taxes

10.    Income Taxes

The United States government enacted comprehensive income tax legislation (the “Tax Act”) in December 2017. The Tax Act makes broad and complex changes to United States income tax law and includes numerous elements that affect the Company, including a reduced federal corporate income tax rate from 35% to 21%, creating a territorial tax system that includes a one-time mandatory transition tax on previously deferred foreign earnings and changes to business-related exclusions, deductions and credits. Our provision for income taxes reflects a statutory 28.1% weighted-average federal income tax rate and other elements of the Tax Act in effect for our fiscal year ending June 30, 2018. The statutory federal income tax rate will be 21.0% for our fiscal year beginning July 1, 2018. The Tax Act also has consequences related to our international operations.

We have substantially completed our analysis and accounting for the Tax Act and have recorded the effects thereof. However, the ultimate financial statement effects of the Tax Act could differ from the amounts we have recognized due to additional information that becomes available, changes in regulations or interpretations, legislative action to address questions around the Tax Act or changes in accounting standards for income taxes or related interpretations. As such, the amounts we have recorded are provisional and we could adjust such amounts in the future if additional new information so requires.

Our consolidated financial statements as of June 30, 2018, reflect the effects of the Tax Act, including:

•      a $2,289 provision for income taxes and reduction in deferred tax assets for the remeasurement of deferred tax assets and liabilities to reflect the reduced income tax rate

•      a $403 provision for income taxes and increase in current liabilities to reflect the one-time mandatory toll charge on the deemed repatriation of undistributed earnings of foreign subsidiaries.

Income (loss) before income taxes was:

For the Years Ended June 30	2018			2017			2016
Domestic		$	19,819		$	18,015		$	2,027
Foreign			68,251			62,528			74,734
Income (loss) before income taxes		$	88,070		$	80,543		$	76,761

Components of the provision for income taxes were:

For the Years Ended June 30	2018			2017			2016
Current provision (benefit):
Federal		$	81		$	383		$	(2,889)
State and local			1,744			724			(474)
Foreign			15,268			14,839			20,168
Total current provision			17,093			15,946			16,805
Deferred provision (benefit):
Federal			2,746			4,675			(2,985)
State and local			2,156			251			911
Foreign			769			(833)			(989)
Change in valuation allowance–domestic			—			—			(19,588)
Change in valuation allowance–foreign			423			(4,111)			(121)
Total deferred provision			6,094			(18)			(22,772)
Provision (benefit) for income taxes		$	23,187		$	15,928		$	(5,967)

During 2017, based on continued profitability, we concluded that it was more likely than not that the value of certain foreign deferred tax assets would be realized, and it was no longer necessary to maintain a related valuation allowance. Accordingly, we released the valuation allowance related to these foreign deferred tax assets. We review the realizability of our deferred tax assets when circumstances indicate a review is required.

Reconciliations of the federal statutory rate to the Company’s effective tax rate were:

For the Years Ended June 30	2018		2017		2016
Federal income tax rate		28.1%		35.0%		35.0%
State and local taxes, net of federal benefit		1.5		0.9		0.2
Foreign income tax rates		(1.5)		(6.8)		(5.5)
Foreign incentive tax rates		(3.3)		(3.1)		(4.5)
Domestic tax on foreign income		—		2.7		2.7
Changes in uncertain tax positions		1.1		1.6		(4.9)
Permanent items		0.5		(0.9)		1.5
Exercise of employee stock options		(4.3)		(3.8)		(4.6)
Mandatory toll charge from Tax Act		0.5		—		—
Reduction of domestic deferred tax assets		2.6		—		—
Reduction of foreign deferred tax assets		1.3		—		—
Recognition of foreign tax credits		(0.7)		—		—
Reclassification from accumulated other comprehensive income		0.6		—		—
Release of foreign valuation allowance		—		(5.1)		—
Release of domestic valuation allowance		—		—		(27.8)
Other		(0.1)		(0.7)		0.1
Effective tax rate		26.3%		19.8%		(7.8)%

We consider undistributed earnings of foreign subsidiaries to be indefinitely reinvested in our international operations. The undistributed earnings of foreign subsidiaries of  $227,084 were subject to the U.S. one-time mandatory toll charge and are eligible to be repatriated to the U.S. without additional U.S. tax under the Tax Act. Should our plans change and we decide to repatriate some or all of the remaining cash held by our international subsidiaries, the amounts repatriated could be subject to applicable non-U.S. income and withholding taxes in international jurisdictions. Taxes are not provided for foreign currency translation adjustments relating to investments in international subsidiaries that will be held indefinitely.

The tax effects of significant temporary differences that comprise deferred tax assets and liabilities were:

As of June 30	2018			2017
Deferred tax assets:
Employee related accruals		$	4,952		$	7,146
Inventory			3,953			4,851
Environmental remediation			1,341			2,280
Net operating loss carry forwards–domestic			1,577			4,893
Net operating loss carry forwards–foreign			3,243			4,023
Other			9,986			11,139
			25,052			34,332
Valuation allowance			(861)			(438)
			24,191			33,894
Deferred tax liabilities:
Property, plant and equipment and intangible assets			(8,957)			(9,671)
Other			(1,906)			(2,004)
			(10,863)			(11,675)
Net deferred tax asset		$	13,328		$	22,219

Deferred taxes are included in the consolidated balance sheets as follows:

As of June 30	2018			2017
Other assets		$	15,424		$	23,269
Other liabilities			(2,096)			(1,050)
		$	13,328		$	22,219

The valuation allowances for deferred tax assets were:

As of June 30	2018			2017			2016
Balance at beginning of period		$	438		$	4,614		$	26,622
Provision for income taxes			423			(4,111)			(19,709)
Net operating loss utilization			—			(65)			(2,299)
Balance at end of period		$	861		$	438		$	4,614

The valuation allowances for deferred tax assets as of June 30, 2018, 2017 and 2016 were solely related to foreign jurisdictions.

We have $23,038 of state net operating loss carry forwards that will expire in 2018 through 2037. In addition, we have $11,630 of foreign net operating loss carry forwards, most of which are in jurisdictions that have no expiration.

As tax law is complex and often subject to varied interpretations, it is uncertain whether some of our tax positions will be sustained upon examination. Tax liabilities associated with uncertain tax positions represent unrecognized tax benefits, which arise when the estimated benefit recorded in our financial statements differs from the amounts taken or expected to be taken in a tax return because of the uncertainties described above. Substantially all of these unrecognized tax benefits, if recognized, would benefit our effective income tax rate. The reconciliation of the beginning and ending amounts of gross unrecognized tax benefits follows:

As of June 30	2018			2017			2016
Unrecognized tax benefits–beginning of period		$	6,553		$	4,946		$	8,078
Tax position changes–current period			1,749			1,490			472
Tax position changes–prior periods, net of settlements with tax authorities			(994)			—			188
Lapse of statute of limitations			—			(391)			(3,700)
Translation			(308)			508			(92)
Unrecognized tax benefits–end of period			7,000			6,553			4,946
Interest and penalties–end of period			633			449			308
Total liabilities related to uncertain tax positions		$	7,633		$	7,002		$	5,254

We recognize interest and penalties associated with uncertain tax positions as a component of the provision for income taxes. We recognized interest and penalties expense (income) of $203, $116 and $(980) for 2018, 2017 and 2016, respectively.

During 2019, we potentially will reverse $1,472 of uncertain tax positions as a result of the lapse of the statute of limitations, with a corresponding benefit to the provision for income taxes.

Income tax returns for the following periods are no longer subject to examination by the relevant tax authorities:

•      U.S. federal and significant states, through June 30, 2007;

•      Brazil, through December 31, 2012;

•      Israel, through June 30, 2013 for certain subsidiaries and through June 30, 2015 for certain subsidiaries.