Income Taxes

12 Months Ended

Jun. 30, 2024

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)	2024			2023			2022
Income (loss) before income taxes:
United States	$	(13,544)		$	(14,702)		$	10,109
International	157,994			174,323			196,624
Total income before income taxes	$	144,450		$	159,621		$	206,733
Current income tax expense (benefit):
Federal	$	(4,003)		$	2,007		$	1,115
State	1,045			546			106
International	41,784			42,921			44,019
Total current income tax expense	38,826			45,474			45,240
Deferred income tax expense (benefit):
Federal	$	(3,389)		$	(3,394)		$	10,841
State	(2,880)			683			(676)
International	(1,748)			(6,508)			1,127
Total deferred income tax expense (benefit):	(8,017)			(9,219)			11,292
Provision for income taxes	$	30,809		$	36,255		$	56,532
Effective tax rate	21.3		%	22.7		%	27.3		%

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 considered the deferred tax asset from Swiss tax reform to be an estimate based on our current interpretation of the legislation, which was subject to change based on further legislative guidance, review with the Swiss federal and cantonal authorities, and modifications to the underlying valuation. During the December quarter of our fiscal 2023, we adjusted the calculation of the transitional provisions of Swiss tax reform after a review and receipt of a ruling from the Swiss federal and cantonal authorities and recorded a $2.2 million tax benefit to adjust the deferred tax asset and income tax liabilities related to fiscal years 2021 and 2022.

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)	2024		2023		2022
Income taxes at U.S. statutory rate	$	30,335	$	33,520	$	43,414
State income taxes, net of federal tax benefit	(1,412)		971		(450)
U.S. income taxes provided on international income	4,272		4,583		12,815
Combined tax effects of international income	10,163		5,761		2,747
Change in valuation allowance and other uncertain tax positions	(3,398)		(4,060)		(614)
U.S. research and development credit	(4,026)		(3,325)		(2,814)
Change in permanent reinvestment assertion	—		—		775
Combined effects of Swiss tax reform	(7,801)		(2,225)		—
Non-deductible executive compensation	2,389		667		1,395
Other	287		363		(736)
Provision for income taxes	$	30,809	$	36,255	$	56,532

During 2024, we recorded a tax benefit of $7.8 million to record the effects of a tax rate increase enacted by the cantonal and municipal tax authorities where we operate in Switzerland. The impact of this item is included in the tax reconciliation table under the caption "Combined effects of Swiss tax reform."

During 2024, we recorded a tax benefit of $6.2 million to reduce an accrual for an unrecognized tax benefit due to the lapse of the statute of limitation. The impact of this item is included in the tax reconciliation table under the caption "Change in valuation allowance and other uncertain tax positions."

During 2024, we recorded a tax charge of $3.1 million to settle income tax litigation in Italy. The impact of this item is included in the tax reconciliation table under the caption "Change in valuation allowance and other uncertain tax positions."

During 2023, we released a $2.9 million valuation allowance that was previously recorded against our net deferred tax assets in Brazil. The impact of this item is included in the tax reconciliation table under the caption “Change in valuation allowance and other uncertain tax positions.”

During 2023, we recorded a tax benefit of $2.2 million to reflect the adjustment of our calculation of the transitional provisions of Swiss tax reform. The impact of this item is included in the tax reconciliation table under the caption "Combined effects of Swiss tax reform."

The components of net deferred tax assets and liabilities were as follows at June 30:

(in thousands)	2024		2023
Deferred tax assets:
Net operating loss (NOL) carryforwards	$	20,340	$	24,111
Inventory valuation and reserves	9,322		9,677
Accrued employee benefits	13,627		14,758
Operating lease liabilities	12,097		11,229
Other accrued liabilities	13,810		13,963
Capitalized research and development costs	35,637		25,187
Tax credits and other carryforwards	18,231		22,601
Intangible assets	11,095		5,209
Total	134,159		126,735
Valuation allowance	5,911		8,281
Total deferred tax assets	$	128,248	$	118,454
Deferred tax liabilities:
Tax depreciation in excess of book	$	58,723	$	62,763
Operating lease right-of-use assets	12,038		11,084
Unremitted earnings not permanently reinvested	6,931		4,831
Pension benefits	2,633		1,808
Other	4,761		4,511
Total deferred tax liabilities	$	85,086	$	84,997
Total net deferred tax assets (liabilities)	$	43,162	$	33,457

Included in deferred tax assets at June 30, 2024 is $18.2 million associated with tax credits and other carryforward items in the U.S. and Europe. Of that amount, $17.4 million expires through 2044, and $0.8 million does not expire.

Included in deferred tax assets at June 30, 2024 is $20.3 million associated with NOL carryforwards in U.S. state and foreign jurisdictions. Of that amount, $2.9 million expires through 2029, $0.8 million expires through 2034, $0.9 million expires through 2039, $3.4 million expires through 2044, and the remaining $12.3 million does not expire. The realization of these tax benefits is primarily dependent on future taxable income in these jurisdictions.

A valuation allowance of $5.9 million has been placed against deferred tax assets primarily in U.S. state, Hong Kong and Bolivia 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 2024, the valuation allowance related to these deferred tax assets decreased by $2.4 million.

We consider the majority of the $1.6 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 $6.9 million as of June 30, 2024.

In 2012, we received an assessment from the Italian tax authority that denied certain tax deductions primarily related to our 2008 tax return. Attempts at negotiating a reasonable settlement with the tax authority were unsuccessful; and as a result, we decided to litigate the matter which was eventually settled during 2024. We continue to believe the assessment was baseless and that our 2008 tax return was compliant, in all material respects, with Italian income tax rules and regulations. Accordingly, no income tax liability had been recorded in connection with this assessment in any period. During fiscal 2023, the Italian government launched a tax amnesty program aimed at reducing the number of tax disputes pending before the Italian courts. Pursuant to program guidelines, payments made to successfully resolve a dispute had to be received by the Italian government no later than September 30, 2023. Due to the prolonged amount of time the case had been pending, and the inherent costs and risks of further litigating the matter, we decided to negotiate a settlement with the Italian tax authority that resulted in an income tax charge of $3.1 million during fiscal 2024. With this settlement, the matter is officially closed.

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)	2024		2023		2022
Balance at beginning of year	$	6,935	$	7,598	$	8,656
(Decreases)/Increases for tax positions of prior years	—		(658)		105
Increase for tax positions related to the current year	79		—		—
Decreases related to lapse of statute of limitations	(5,686)		(99)		(779)
Foreign currency translation	(19)		94		(384)
Balance at end of year	$	1,309	$	6,935	$	7,598

The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate in 2024, 2023 and 2022 is $1.3 million, $6.9 million and $7.6 million, respectively. We believe that it is reasonably possible that the amount of unrecognized tax benefits will decrease by approximately $0.1 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 a decrease of $0.9 million and $0.3 million in 2024 and 2023, respectively, and an increase of $0.1 million in 2022. As of June 30, 2024 and 2023, the amount of interest accrued was $0.1 million and $1.0 million, respectively. As of June 30, 2024 and 2023, the amount of penalty accrued was $0.1 million.

With few exceptions, we are no longer subject to income tax examinations by tax authorities for years prior to 2019. The Internal Revenue Service has audited, or the statute of limitations has expired, for all U.S. tax years prior to 2020. Various state and foreign jurisdiction tax authorities are in the process of examining our income tax returns for various tax years ranging from 2017 to 2023. 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.