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INCOME TAXES | 12 Months Ended
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Jun. 30, 2024
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES The components of income before income taxes were as follows:
| Year Ended June 30,
(In thousands) | 2024 |  | 2023 |  | 2022
Domestic income before income taxes | $ | 1,997,090 |  |  | $ | 2,017,338 |  |  | $ | 1,909,699 |
Foreign income before income taxes | 1,192,942 |  |  | 1,771,852 |  |  | 1,579,538 |
Total income before income taxes | $ | 3,190,032 |  |  | $ | 3,789,190 |  |  | $ | 3,489,237 |
The provision for income taxes was comprised of the following:
(In thousands) | Year Ended June 30,
2024 |  | 2023 |  | 2022
Current: |  |  |  |  |
Federal | $ | 395,876 |  |  | $ | 553,197 |  |  | $ | 341,614 |
State | 10,737 |  |  | 14,804 |  |  | 14,149 |
Foreign | 160,401 |  |  | 188,991 |  |  | 165,194 |
| 567,014 |  |  | 756,992 |  |  | 520,957 |
Deferred: |  |  |  |  |
Federal | (110,686) |  |  | (228,414) |  |  | 11,564 |
State | (2,770) |  |  | (4,295) |  |  | (311) |
Foreign | (25,422) |  |  | (122,444) |  |  | (365,033) |
| (138,878) |  |  | (355,153) |  |  | (353,780) |
Provision for income taxes | $ | 428,136 |  |  | $ | 401,839 |  |  | $ | 167,177 |
The significant components of deferred income tax assets and liabilities were as follows:
(In thousands) | As of June 30,
2024 |  | 2023
Deferred tax assets: |  |  |
Capitalized R&D expenses | $ | 328,061 |  |  | $ | 201,228 |
Tax credits and net operating losses | 311,026 |  |  | 271,500 |
Depreciation and amortization | 151,371 |  |  | 73,691 |
Inventory reserves | 121,238 |  |  | 103,646 |
Employee benefits accrual | 95,461 |  |  | 92,696 |
Non-deductible reserves | 53,668 |  |  | 52,147 |
Unearned revenue | 25,532 |  |  | 16,668 |
SBC | 15,375 |  |  | 12,710 |
Other | 12,785 |  |  | 35,360 |
Gross deferred tax assets | 1,114,517 |  |  | 859,646 |
Valuation allowance | (289,534) |  |  | (259,172) |
Net deferred tax assets | $ | 824,983 |  |  | $ | 600,474 |
Deferred tax liabilities: |  |  |
Unremitted earnings of foreign subsidiaries not indefinitely reinvested | $ | (315,231) |  |  | $ | (279,677) |
Deferred profit | (70,204) |  |  | (23,149) |
Unrealized gain on investments | (10,949) |  |  | (9,994) |
Total deferred tax liabilities | (396,384) |  |  | (312,820) |
Total net deferred tax assets | $ | 428,599 |  |  | $ | 287,654 |
Our deferred tax assets for the years ended June 30, 2024 and 2023 reflect the impact of the mandatory capitalization of research and experimental expenditures as required by the 2017 Tax Cuts and Jobs Act. This provision was first effective for the Company in the year ending June 30, 2023. As of June 30, 2024, we had U.S. federal, state and foreign net operating loss (“NOL”) carry-forwards of $6.5 million, $11.8 million and $221.5 million, respectively. We also had foreign capital loss carry-forwards of $8.6 million as of June 30, 2024. The U.S. federal NOL carry-forwards will expire at various dates beginning in 2025 through 2042. The utilization of NOLs created by acquired companies is subject to annual limitations under Section 382 of the Internal Revenue Code. However, it is not expected that such annual limitation will significantly impair the realization of these NOLs. The state NOLs will expire at various dates beginning in 2028 through 2036. Foreign NOLs and capital loss carry-forwards will be carried forward indefinitely. State credits of $366.6 million will also be carried forward indefinitely. The net deferred tax asset valuation allowance was $289.5 million and $259.2 million as of June 30, 2024 and 2023, respectively. The change was primarily due to an increase in the valuation allowance related to state credit carry-forwards generated in the fiscal year ended June 30, 2024. The valuation allowance is based on our assessment that it is more likely than not that certain deferred tax assets will not be realized in the foreseeable future. Of the valuation allowance as of June 30, 2024, $285.4 million was related to federal and state credit carry-forwards. The remainder of the valuation allowance was related to state and foreign NOL carry-forwards. As of June 30, 2024, we intend to indefinitely reinvest $185.9 million of cumulative undistributed earnings held by certain non-U.S. subsidiaries. If these undistributed earnings were repatriated to the U.S., the potential deferred tax liability associated with the undistributed earnings would be approximately $39 million. We benefit from tax holidays in Singapore where we manufacture certain of our products. These tax holidays are on approved investments. The tax holidays in Singapore are scheduled to expire in five to eight years. We were in compliance with all the terms and conditions of the tax holidays as of June 30, 2024. The net impact of these tax holidays was to decrease our tax expense by $159.4 million, $161.5 million and $543.7 million in the fiscal years ended June 30, 2024, 2023 and 2022, respectively. The benefits of the tax holidays on diluted net income per share were $1.19, $1.18 and $3.83 for the fiscal years ended June 30, 2024, 2023 and 2022, respectively. The benefits during the fiscal year ended June 30, 2022 include a one-time deferred tax benefit of approximately $398 million due to a tax basis step-up from a restructuring. The reconciliation of the U.S. federal statutory income tax rate to our effective income tax rate was as follows:
| Year ended June 30,
| 2024 |  | 2023 |  | 2022
Federal statutory rate | 21.0 | % |  | 21.0 | % |  | 21.0 | %
GILTI | 3.7 | % |  | 3.4 | % |  | 2.0 | %
Goodwill impairment | 1.7 | % |  | — | % |  | — | %
Net change in tax reserves | 1.1 | % |  | — | % |  | 2.0 | %
State income taxes, net of federal benefit | 0.3 | % |  | 0.2 | % |  | 0.3 | %
Restructuring | — | % |  | — | % |  | (11.2) | %
Effect of SBC | — | % |  | 0.1 | % |  | (0.2) | %
R&D tax credit | (1.6) | % |  | (1.5) | % |  | (1.1) | %
Foreign derived intangible income | (5.9) | % |  | (5.7) | % |  | (4.0) | %
Effect of foreign operations taxed at various rates | (6.6) | % |  | (7.1) | % |  | (4.2) | %
Other | (0.3) | % |  | 0.2 | % |  | 0.2 | %
Effective income tax rate | 13.4 | % |  | 10.6 | % |  | 4.8 | %
A reconciliation of gross unrecognized tax benefits was as follows:
| Year Ended June 30,
(In thousands) | 2024 |  | 2023 |  | 2022
Unrecognized tax benefits at the beginning of the year | $ | 213,092 |  |  | $ | 217,927 |  |  | $ | 149,642 |
Increases for tax positions taken in current year | 40,209 |  |  | 44,590 |  |  | 49,311 |
Increases for tax positions taken in prior years | 23,291 |  |  | 434 |  |  | 20,917 |
Decreases for settlements with taxing authorities | — |  |  | (45,042) |  |  | — |
Decreases for tax positions taken in prior years | (26,766) |  |  | (3,929) |  |  | (267) |
Decreases for lapsing of statutes of limitations | (4,119) |  |  | (888) |  |  | (1,676) |
Unrecognized tax benefits at the end of the year | $ | 245,707 |  |  | $ | 213,092 |  |  | $ | 217,927 |
The amounts of unrecognized tax benefits that would impact the effective tax rate were $244.6 million, $199.0 million and $205.0 million as of June 30, 2024, 2023 and 2022, respectively. The amounts of interest and penalties recognized during the years ended June 30, 2024, 2023 and 2022 were expenses (benefits) of $8.3 million, $(20.2) million and $11.5 million, respectively. Our policy is to include interest and penalties related to unrecognized tax benefits within Other expense (income), net. The amounts of interest and penalties accrued as of June 30, 2024 and 2023 were $41.1 million and $32.6 million, respectively. In the normal course of business, we are subject to examination by tax authorities throughout the world. We are subject to U.S. federal income tax examinations for all years beginning from the fiscal year ended June 30, 2018 and are under U.S. federal income tax examination for the fiscal years ended June 30, 2018, 2019 and 2020. We are subject to state income tax examinations for all years beginning from the fiscal year ended June 30, 2020. We are also subject to examinations in other major foreign jurisdictions, including Singapore and Israel, for all years beginning from the calendar year ended December 31, 2019 and are under audit in Israel for the period from January 1, 2019 to June 30, 2022. We have changed our year end in Israel to a fiscal year ending June 30. In August 2022, Orbotech executed a settlement agreement with the Israel Tax Authority (“ITA”) in resolution of tax examinations for fiscal years 2012 through 2014 and 2015 through 2018. The settlement agreement included a payment of approximately $25.7 million, including interest, to the ITA. In addition, Orbotech paid approximately $16.2 million to the ITA related to previous “tax exempt” earnings under the historical Approved or Beneficial Enterprises regimes. The current year election to pay tax on the previous exempt earnings was made under the Temporary Order issued in the Israel Budget, which allows for a reduced tax rate on such earnings. Approximately $5.7 million of the settlement payment related to the amount of R&D expenses eligible for deduction during the above referenced years was refunded to Orbotech in January 2023. We believe that we may recognize up to $16.5 million of our existing unrecognized tax benefits within the next 12 months as a result of the lapse of statutes of limitations. It is possible that certain income tax examinations may be concluded in the next 12 months. Given the uncertainty around the timing of the resolution of these ongoing examinations, we are unable to estimate the full range of possible adjustments to our unrecognized tax benefits within the next 12 months. Legislative Developments President Biden signed into law the CHIPS and Science Act of 2022 (“CHIPS Act,” where “CHIPS” stands for Creating Helpful Incentives to Produce Semiconductors) on August 9, 2022. The CHIPS Act provides for various incentives and tax credits among other items, including the Advanced Manufacturing Investment Credit (“AMIC”), which equals 25% of qualified investments in an advanced manufacturing facility that is placed in service after December 31, 2022. There was no material impact to our financial statements from the AMIC provision. President Biden also signed into law the IRA on August 16, 2022. The IRA has several provisions including a 15% corporate alternative minimum tax (“CAMT”) for certain large corporations that have at least an average of $1.0 billion of adjusted financial statement income over a consecutive three-tax-year period. The CAMT was effective for us beginning in our fiscal year ending June 30, 2024 and there was no tax impact to our financial statements from the CAMT provision. The IRA also introduced a 1% excise tax imposed on certain stock repurchases by publicly traded companies made after December 31, 2022. We began recording the excise tax as part of the cost basis of treasury stock repurchased after December 31, 2022. Other than the AMIC and the excise tax imposed on certain stock repurchases as mentioned above, we are currently evaluating the applicability and impact of the other provisions in the IRA and the CHIPS Act on our Consolidated Financial Statements including our future cash flows. California Governor Newsom approved the 2024-25 California State Budget on June 27, 2024, which includes a provision to suspend the use of all net operating losses and limits the use of R&D tax credits to $5 million for tax years 2024 through 2026. This provision will be effective in our fiscal years ending June 30, 2025 through June 30, 2027. We do not expect these modifications to have any impact to our Consolidated Financial Statements.

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