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Income Taxes
 12 Months Ended
Jun. 30, 2022
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
Income (loss) before income taxes consisted of the following for the years ended June 30: 
(in thousands)202220212020
Income (loss) before income taxes:
United States$10,109 $(60,775)$(76,107)
International196,624 125,435 78,067 
Total income before income taxes$206,733 $64,660 $1,960 
Current income taxes:
Federal$1,115 $39 $(3,558)
State106 133 905 
International44,019 30,726 33,559 
Total current income taxes45,240 30,898 30,906 
Deferred income taxes:
Federal$10,841 $(23,170)$(9,113)
State(676)(2,948)724 
International1,127 1,463 (15,510)
Total deferred income taxes: 11,292 (24,655)(23,899)
Provision for income taxes$56,532 $6,243 $7,007 
Effective tax rate27.3 %9.7 %357.5 %
Coronavirus Aid, Relief, and Economic Security Act (CARES Act)
On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, allows net operating losses arising in taxable years beginning after December 31, 2017 and before January 1, 2021 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes; permits net operating loss carryovers and carrybacks to offset 100 percent of taxable income for taxable years beginning before January 1, 2021; and modifies the limitation on business interest by increasing the allowable business interest deduction from 30 percent of adjusted taxable income to 50 percent of adjusted taxable income for taxable years beginning in 2019 or 2020. We carried back our taxable loss in the U.S. for fiscal 2020 under the provisions of the CARES Act and recorded a benefit in our tax provision during fiscal 2020.
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 December quarter of fiscal 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.
The reconciliation of income taxes computed using the statutory U.S. income tax rate and the provision for income taxes was as follows for the years ended June 30:
(in thousands)202220212020
Income taxes at U.S. statutory rate$43,414 $13,579 $412 
State income taxes, net of federal tax benefit(450)(1,725)1,283 
U.S. income taxes provided on international income12,815 (6,479)12,422 
Combined tax effects of international income2,747 5,860 10,583 
Impact of goodwill impairment charges— — 5,651 
Change in valuation allowance and other uncertain tax positions(614)1,127 755 
U.S. research and development credit(2,814)(3,055)(4,093)
Change in permanent reinvestment assertion775 — — 
Combined effects of Swiss tax reform— — (14,500)
Combined effects of the U.S. CARES Act— — (6,913)
Recognition of stranded deferred tax balance— (3,465)— 
Other659 401 1,407 
Provision for income taxes$56,532 $6,243 $7,007 
During 2021, we recorded a tax benefit of $3.5 million for the recognition of a stranded deferred tax balance in accumulated other comprehensive loss associated with the forward starting interest rate swap contracts that were terminated when the 2022 Senior Notes were extinguished. The impact of this item is included in the tax reconciliation table under the caption “Recognition of stranded deferred tax balance” and in the consolidated statements of cash flows as a non-cash item within the caption "Debt refinancing charge."
During 2021, we recorded a net tax benefit of $9.3 million related to a tax election made in our fiscal 2020 U.S. income tax return pursuant to global intangible low-taxed income (GILTI) regulations which were issued during the current fiscal year. The impact of this item is included in the tax reconciliation table under the caption “U.S. income taxes provided on international income.”
The components of net deferred tax assets and liabilities were as follows at June 30:
(in thousands)20222021
Deferred tax assets:
Net operating loss (NOL) carryforwards$25,868 $44,258 
Inventory valuation and reserves11,747 11,068 
Pension benefits— 7,136 
Other postretirement benefits3,050 3,486 
Accrued employee benefits11,775 11,168 
Operating lease liabilities11,995 12,652 
Other accrued liabilities12,992 15,596 
Tax credits and other carryforwards34,930 32,490 
Intangible assets4,246 7,784 
Total116,603 145,638 
Valuation allowance14,385 21,263 
Total deferred tax assets$102,218 $124,375 
Deferred tax liabilities:
Tax depreciation in excess of book$57,109 $63,020 
Operating lease right-of-use assets11,852 12,502 
Unremitted earnings not permanently reinvested7,242 6,429 
Pension benefits1,061 — 
Other2,537 7,392 
Total deferred tax liabilities$79,801 $89,343 
Total net deferred tax assets (liabilities)$22,417 $35,032 
As of June 30, 2022, we have $25.9 million of U.S. net deferred tax assets. Within this amount is $46.2 million 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. 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.
Included in deferred tax assets at June 30, 2022 is $34.9 million associated with tax credits and other carryforward items in the U.S. and Europe. Of that amount, $2.5 million expires through 2032, $4.6 million expires through 2037, $19.1 million expires through 2042, $1.5 million does not expire, and $7.2 million is amortizable over ten years.
Included in deferred tax assets at June 30, 2022 is $25.9 million associated with NOL carryforwards in U.S. state and foreign jurisdictions. Of that amount, $4.7 million expires through 2027, $2.0 million expires through 2032, $3.2 million expires through 2037, $2.2 million expires through 2042, and the remaining $13.8 million does not expire. The realization of these tax benefits is primarily dependent on future taxable income in these jurisdictions.
A valuation allowance of $14.4 million has been placed against deferred tax assets primarily in U.S. state, Brazil, Bolivia, and Russia jurisdictions, all of which would be allocated to income tax expense upon realization of the deferred tax assets. As the respective operations generate sufficient income, the valuation allowances will be partially or fully reversed at such time we believe it will be more likely than not that the deferred tax assets will be realized. In 2022, the valuation allowance related to these deferred tax assets decreased by $6.9 million.
We consider the majority of the $1.5 billion unremitted earnings of our non-U.S. subsidiaries to be permanently reinvested. With regard to these unremitted earnings, we have not, nor do we anticipate the need to, repatriate funds to the U.S. to satisfy domestic liquidity needs arising in the ordinary course of business, including liquidity needs associated with our domestic debt service requirements. Determination of the amount of unrecognized deferred tax liability related to indefinitely reinvested earnings is not practicable due to our legal entity structure and the complexity of U.S. and local tax laws. With regard to the small portion of unremitted earnings that are not indefinitely reinvested, we maintain a deferred tax liability for foreign withholding and U.S. state income taxes. The deferred tax liability associated with unremitted earnings of our non-U.S. subsidiaries not permanently reinvested is $7.2 million as of June 30, 2022.
A reconciliation of the beginning and ending amount of unrecognized tax benefits (excluding interest and penalty) is as follows as of June 30:
(in thousands)202220212020
Balance at beginning of year$8,656 $8,680 $8,952 
Increases for tax positions of prior years105 — — 
Decreases related to lapse of statute of limitations(779)(229)(214)
Foreign currency translation(384)205 (58)
Balance at end of year$7,598 $8,656 $8,680 
The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate in 2022, 2021 and 2020 is $7.6 million, $8.7 million and $8.7 million, respectively. We believe that it is reasonably possible that the amount of unrecognized tax benefits will decrease by approximately $2.0 million within the next twelve months.
Our policy is to recognize interest and penalties related to income taxes as a component of the provision for income taxes in the consolidated statements of income. We recognized an increase of $0.1 million and $1.0 million in 2022 and 2020, respectively, and a decrease of $0.2 million in 2021. As of June 30, 2022 and 2021, the amount of interest accrued was $1.4 million in both periods. As of June 30, 2022 and 2021, there was no penalty accrued.
With few exceptions, we are no longer subject to income tax examinations by tax authorities for years prior to 2015. The Internal Revenue Service has audited or the statute of limitations has expired for all U.S. tax years prior to 2018. Various state and foreign jurisdiction tax authorities are in the process of examining our income tax returns for various tax years ranging from 2015 to 2019. We continuously review our uncertain tax positions and evaluate any potential issues that may lead to an increase or decrease in the total amount of unrecognized tax benefits recorded.