Income Taxes

12 Months Ended

Jun. 30, 2020

Income Before Income Taxes

The components of income before income taxes are as follows:



Year Ended June 30,	2020		2019			2018
U.S.	$	36,161	$	204,462		$	186,874
Foreign	19,075		(9,981		)	17,844
Income before income taxes	$	55,236	$	194,481		$	204,718

Provision

The provision (benefit) for income taxes consists of:



Year Ended June 30,	2020			2019			2018
Current:
Federal	$	31,149		$	34,437		$	48,131
State and local	7,580			7,965			8,038
Foreign	5,757			5,718			5,309
Total current	44,486			48,120			61,478
Deferred:
Federal	(8,594		)	6,265			5,955
State and local	(3,098		)	1,947			(586		)
Foreign	(1,600		)	(5,844		)	(3,754		)
Total deferred	(13,292		)	2,368			1,615
Total	$	31,194		$	50,488		$	63,093

During the third quarter of fiscal 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was enacted in the U.S. As a result of the CARES Act, the Company recorded a $1,000 tax benefit related to the carryback of a tax net operating loss incurred in a year in which the U.S. federal corporate income tax rate was 21% to a year in which the U.S. federal corporate income tax rate was higher.

On December 22, 2017, the Tax Cuts and Jobs Act (the "Act") was enacted in the U.S., making significant changes to U.S. tax law. The Act reduced the U.S. federal corporate income tax rate from 35% to 21%, required companies to pay a one-time transition tax on certain unremitted earnings of foreign subsidiaries that were previously tax deferred, generally eliminated U.S. federal income tax on dividends from foreign subsidiaries, and created new taxes on certain foreign-sourced earnings. During fiscal 2018, the Company revised its estimated annual effective tax rate to reflect the change in the federal statutory rate from 35% to 21%. The rate change was administratively effective as of the beginning of the Company's fiscal 2018, resulting in a blended statutory rate for fiscal 2018 of 28.06%.

The SEC staff issued SAB 118, which provided guidance on accounting for the tax effects of the Act for which the accounting under ASC 740 was incomplete. To the extent that a company's accounting for certain income tax effects of the Act was incomplete but it was able to determine a reasonable estimate, it was required to record a provisional estimate in the financial statements. If a company could not determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before enactment of the Act. As of June 30, 2019, the Company recorded a net tax expense of $5,802 related to the one time transition tax and re-measurement of deferred tax balances.

Effective Tax Rates

The following reconciles the U.S. federal statutory income tax rate to the Company’s effective income tax rate:



Year Ended June 30,	2020		2019		2018
Statutory income tax rate	21.0	%	21.0	%	28.1	%
Effects of:
State and local taxes	6.4		4.4		3.1
U.S. federal tax reform	—		(0.3	)	3.1
CARES Act NOL carryback	(1.8	)	—		—
Goodwill impairment	31.4		—		—
Stock compensation	(1.3	)	(0.5	)	(0.4	)
GILTI/FDII	3.6		0.7		—
R & D credit	(1.2	)	(0.4	)	(0.3	)
U.S. tax on foreign income, net	(3.1	)	0.5		—
Impact of foreign operations	1.6		(0.6	)	0.7
Non-deductibles	1.2		0.6		0.3
Interest deduction	(4.0	)	(1.2	)	(1.6	)
Deductible dividend	(0.6	)	(0.2	)	(1.3	)
Valuation allowance	2.6		2.9		(0.3	)
Other, net	0.7		(0.9	)	(0.6	)
Effective income tax rate	56.5	%	26.0	%	30.8	%

Consolidated Balance Sheets

Significant components of the Company’s deferred tax assets and liabilities are as follows:



June 30,	2020			2019
Deferred tax assets:
Compensation liabilities not currently deductible	$	17,252		$	17,401
Other expenses and reserves not currently deductible	15,272			13,050
Goodwill and intangibles	—			2,398
Leases	24,016			—
Net operating loss carryforwards	8,859			8,466
Hedging instrument	6,406			3,498
Other	757			1,173
Total deferred tax assets	72,562			45,986
Less: Valuation allowance	(7,494		)	(5,597		)
Deferred tax assets, net of valuation allowance	65,068			40,389
Deferred tax liabilities:
Inventories	(8,284		)	(8,600		)
Goodwill and intangibles	(58,506		)	(75,504		)
Leases	(23,407		)	—
Depreciation and differences in property bases	(13,018		)	(10,777		)
Total deferred tax liabilities	(103,215		)	(94,881		)
Net deferred tax liabilities	$	(38,147	)	$	(54,492	)
Net deferred tax liabilities are classified as follows:
Other assets	$	4,749		$	3,859
Other liabilities	(42,896		)	(58,351		)
Net deferred tax liabilities	$	(38,147	)	$	(54,492	)

As of June 30, 2020 and 2019, the Company had foreign net operating loss carryforwards of approximately $29,584 and $27,024, respectively, which will expire at various dates beginning in 2033. Also, as of June 30, 2020 and

2019, the Company had state net operating loss carryforwards, the tax benefit of which is approximately $1,177 and $2,098 respectively, which will expire at various dates beginning in 2027.

Valuation allowances are provided against deferred tax assets where it is considered more-likely-than-not that the Company will not realize the benefit of such assets. The remaining net deferred tax asset is the amount management believes is more-likely-than-not of being realized. The realization of these deferred tax assets can be impacted by changes to tax laws, statutory tax rates and future income levels. During the year ended June 30, 2020, the Company recorded a valuation allowance of $2,124 related to certain deferred tax assets in Canada due to the uncertainty in realizing these net deferred tax assets.

As of June 30, 2020, the Company had accumulated undistributed earnings of non-U.S. subsidiaries of approximately $114,070. The vast majority of such earnings have previously been subjected to the one-time transition tax or the Global Intangible Low Taxed Income ("GILTI") inclusion implemented by the Act. Therefore, any additional taxes due with respect to such earnings or the excess of the amount for financial reporting over the tax basis of our foreign investments would generally be limited to foreign withholding and state income taxes. In addition, we expect foreign tax credits would be available to either offset or partially reduce the tax cost in the event of a distribution. We intend, however, to indefinitely reinvest these earnings and expect future U.S. cash generation to be sufficient to meet future U.S. cash needs.

Unrecognized Income Tax Benefits

The Company and its subsidiaries file income tax returns in U.S. federal, various state, local and foreign jurisdictions. The following table sets forth the changes in the amount of unrecognized tax benefits for the years ended June 30, 2020 and 2019:



Year Ended June 30,	2020			2019
Unrecognized Income Tax Benefits at beginning of the year	$	4,979		$	3,988
Current year tax positions	105			105
Prior year tax positions	177			1,151
Expirations of statutes of limitations	(306		)	(265		)
Unrecognized Income Tax Benefits at end of year	$	4,955		$	4,979

The Company recognizes interest and penalties related to uncertain tax positions in the provision for income taxes. During 2020 and 2019, the Company recognized $256 and $161 of expense, respectively, for interest and penalties related to unrecognized income tax benefits in its statements of consolidated income. The Company had a liability for penalties and interest of $1,094 and $838 as of June 30, 2020 and 2019, respectively. The Company does not anticipate a significant change to the total amount of unrecognized income tax benefits within the next twelve months. Included in the balance of unrecognized income tax benefits at June 30, 2020 and 2019 are $4,708 and $4,701, respectively, of income tax benefits that, if recognized, would affect the effective income tax rate.

The Company is subject to U.S. federal income tax examinations for the tax years 2017 through 2020 and to state and local income tax examinations for the tax years 2014 through 2020. In addition, the Company is subject to foreign income tax examinations for the tax years 2013 through 2020.

The Company’s unrecognized income tax benefits are included in other liabilities in the consolidated balance sheets since payment of cash is not expected within one year, or as a reduction of a deferred tax asset.