Income Taxes

12 Months Ended

Jun. 30, 2022

Income Taxes

Income Taxes

Note 16. Income Taxes

The following table summarizes the components of the provision for income taxes for the fiscal years ended June 30:

(In thousands)	2022		2021		2020
Current Income Tax Expense (Benefit)
Federal	$	(2,398)	$	(57,335)	$	(7,082)
State and Local		94		70		405
Total Current Income Tax Expense (Benefit)		(2,304)		(57,265)		(6,677)
Deferred Income Tax Expense (Benefit)
Federal		—		112,414		(6,525)
State and Local		—		5,476		(2,060)
Total Deferred Income Tax Expense (Benefit)		—		117,890		(8,585)
Total Income Tax Expense (Benefit)	$	(2,304)	$	60,625	$	(15,262)

A reconciliation of the differences between the effective rates and federal statutory rates was as follows:

	June 30,		June 30,		June 30,
	2022		2021		2020
Federal income tax at statutory rate	21.0	%	21.0	%	21.0	%
State and local income tax, net	—	%	(1.4)	%	2.7	%
Nondeductible expenses	(0.1)	%	(0.1)	%	(1.1)	%
Nondeductible drug fee	—	%	(0.1)	%	(1.6)	%
Foreign rate differential	—	%	—	%	(0.1)	%
Income tax credits	0.1	%	0.2	%	2.5	%
Unrecognized tax benefits	—	%	—	%	(5.0)	%
Change in tax laws	1.0	%	5.1	%	15.4	%
Excess tax benefits on share-based compensation	(0.2)	%	(0.3)	%	(0.8)	%
Valuation allowance	(20.8)	%	(44.3)	%	—	%
Other	—	%	(0.1)	%	(1.6)	%
Effective income tax rate	1.0	%	(20.0)	%	31.4	%

The principal types of differences between assets and liabilities for financial statement and tax return purposes are accruals, reserves, impairment of intangibles, accumulated amortization, accumulated depreciation and share-based compensation expense. A deferred tax asset is recorded for the future benefits created by the timing of accruals and reserves and the application of different amortization lives for financial statement and tax return purposes. The Company’s deferred tax liability is mainly attributable to different depreciation methods for financial statement and tax return purposes. A deferred tax asset valuation allowance is established if it is more likely than not that the Company will be unable to realize certain of the deferred tax assets. As of June 30, 2022 and 2021, temporary differences which give rise to deferred tax assets and liabilities were as follows:

	June 30,		June 30,
(In thousands)	2022		2021
Deferred tax assets:
Share-based compensation expense	$	2,567	$	1,779
Reserves		21,179		8,213
Inventory		6,249		6,047
Federal net operating loss		13,688		273
State net operating loss		6,682		9,415
Impairment on Cody note receivable		1,150		1,157
Accumulated amortization on intangible assets		119,764		112,548
Foreign net operating loss		1,792		1,792
Interest carryforward		34,117		21,111
Operating lease		2,563		2,890
R&D carryforward		1,690		1,334
Other		1,266		849
Total deferred tax asset		212,707		167,408
Valuation allowance		(193,478)		(153,383)
Total deferred tax asset less valuation allowance		19,229		14,025
Deferred tax liabilities:
Prepaid expenses		878		239
Property, plant and equipment		12,872		11,525
Operating lease		2,048		2,261
Other		3,431		—
Total deferred tax liability		19,229		14,025
Net deferred tax asset	$	—	$	—

The federal and state and local tax deferred tax assets begin to expire in fiscal years 2026 and 2036, respectively. The General Business Credit generated in fiscal year 2021 will expire in fiscal year 2041. The interest carryforward has an indefinite life.

In Fiscal 2021, the Company recorded a full valuation allowance of its net deferred tax assets totaling $153.4 million. In determining whether a valuation allowance was necessary, the Company reviewed all available positive and negative evidence including forecasts of future taxable income, historical results of operations, statutory expirations and available tax planning strategies, among other considerations. In accordance with ASC 740 Income Taxes, the weight given to the evidence reviewed was commensurate with the extent each can be objectively verified. Based on our review, the Company determined that the positive evidence related to longer-term projected profitability, when taking into consideration the inherent uncertainty around the available data, was insufficient to overcome the significant negative evidence attributed to recent historical losses incurred as well as the revised forecasts indicating continued competitive pressures on our near-term outlook. The Company has a valuation allowance of its net deferred tax assets totaling $193.5 million as of June 30, 2022.

The Company may recognize the tax benefit from an uncertain tax position claimed on a tax return only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits (exclusive of interest and penalties) was as follows:

(In thousands)	Balance
Balance at June 30, 2020	$	4,591
Increases for tax positions of the current year		91
Increases for tax positions of prior years		104
Lapse of statute of limitations		(240)
Balance at June 30, 2021	$	4,546
Increases for tax positions of the current year		40
Decreases for tax positions of prior years		(250)
Balance at June 30, 2022	$	4,336

The amount of unrecognized tax benefits at June 30, 2022, 2021 and 2020 was $4.6 million, $4.5 million and $4.6 million, respectively, of which $4.5 million, $4.4 million and $4.5 million would impact the Company’s effective tax rate, respectively, if recognized.

The Company has not recorded any interest and penalties for the periods ended June 30, 2022, 2021 and 2020 in the statement of operations and no cumulative interest and penalties have been recorded either in the Company’s Consolidated Balance Sheet as of June 30, 2022 and 2021. The Company will recognize interest accrued on unrecognized tax benefits in interest expense and any related penalties in operating expenses.

The Company files income tax returns in the United States federal jurisdiction and various states. The Company’s federal tax returns for Fiscal 2014 and prior generally are no longer subject to review as such years are closed. The Company’s Fiscal 2015 through 2017, 2019, 2020 and 2021federal returns are currently under examination by the Internal Revenue Service (“IRS”). As part of a lengthy process, the Company has received various Information Document Requests (“IDRs”) and Notices of Proposed Adjustment (“NOPAs”) with respect to positions taken in certain income tax issues, including an accounting method change related to chargebacks and rebates that the IRS is proposing to disallow. We are in the process of assessing the impact of these notices and preparing a response to the IRS. We believe that it is more likely than not that our positions will ultimately be sustained upon further examination, and, if necessary, will contest any additional tax determined to be owed; however, an adverse outcome could have a material impact to the Company’s Consolidated Statements of Operations and financial position.

In October 2018, the Commonwealth of Pennsylvania initiated a routine field audit of the Company’s Fiscal 2016 and Fiscal 2017 corporate tax returns. In November 2021, the Company was notified that the State of Florida will conduct an audit of the Company’s Fiscal 2019 and 2020 corporate tax returns. In March 2022, the Company was notified that the Commonwealth of Pennsylvania and the State of Florida concluded their audits, which did not result in any assessments.