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Income Taxes | 12 Months Ended
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Jun. 30, 2021
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes The components of earnings (loss) before income taxes were as follows:
Year Ended June 30, |  | 2021 |  | 2020 |  | 2019
($000) |  |  |  |  |  |
U.S. income (loss) |  | $ | 21,692 |  |  | $ | (302,027) |  |  | $ | (34,241) |
Non-U.S. income |  | 330,898 |  |  | 238,099 |  |  | 163,054 |
Earnings (loss) before income taxes |  | $ | 352,590 |  |  | $ | (63,928) |  |  | $ | 128,813 |
The components of income tax expense were as follows:
Year Ended June 30, |  | 2021 |  | 2020 |  | 2019
($000) |  |  |  |  |  |
Current: |  |  |  |  |  |
Federal |  | $ | 415 |  |  | $ | 7 |  |  | $ | 1,755 |
State |  | 1,632 |  |  | 496 |  |  | 472 |
Foreign |  | 53,362 |  |  | 45,052 |  |  | 29,531 |
Total Current |  | $ | 55,409 |  |  | $ | 45,555 |  |  | $ | 31,758 |
Deferred: |  |  |  |  |  |
Federal |  | $ | 13,744 |  |  | $ | (43,955) |  |  | $ | (3,764) |
State |  | (431) |  |  | 1,007 |  |  | (2,010) |
Foreign |  | (13,684) |  |  | 494 |  |  | (4,688) |
Total Deferred |  | $ | (371) |  |  | $ | (42,454) |  |  | $ | (10,462) |
Total Income Tax Expense |  | $ | 55,038 |  |  | $ | 3,101 |  |  | $ | 21,296 |
Principal items comprising deferred income taxes were as follows:
June 30, |  | 2021 |  | 2020
($000) |  |  |  |
Deferred income tax assets |  |  |  |
Inventory capitalization |  | $ | 20,753 |  |  | $ | 19,372 |
Interest rate swap |  | 6,347 |  |  | 9,847 |
Non-deductible accruals |  | 7,437 |  |  | 9,325 |
Accrued employee benefits |  | 14,025 |  |  | 11,095 |
Net-operating loss and credit carryforwards |  | 163,717 |  |  | 182,625 |
Share-based compensation expense |  | 8,400 |  |  | 8,110 |
Other |  | 8,956 |  |  | 9,736 |
Right of use asset |  | 33,341 |  |  | 31,573 |
Valuation allowances |  | (53,765) |  |  | (54,559) |
Total deferred income tax assets |  | $ | 209,211 |  |  | $ | 227,124 |
Deferred income tax liabilities |  |  |  |
Tax over book accumulated depreciation |  | $ | (32,692) |  |  | $ | (25,926) |
Intangible assets |  | (153,582) |  |  | (160,577) |
Tax on unremitted earnings |  | (21,569) |  |  | (21,785) |
Convertible debt |  | (3,321) |  |  | (6,006) |
Lease liability |  | (32,053) |  |  | (29,768) |
Other |  | (6,458) |  |  | (5,676) |
Total deferred income tax liabilities |  | $ | (249,675) |  |  | $ | (249,738) |
Net deferred income taxes |  | $ | (40,464) |  |  | $ | (22,614) |
The reconciliation of income tax expense at the statutory U.S. federal rate to the reported income tax expense is as follows:
Year Ended June 30, |  | 2021 |  | % |  | 2020 |  | % |  | 2019 |  | %
($000) |  |  |  |  |  |  |  |  |  |  |  |
Taxes at statutory rate |  | $ | 74,044 |  |  | 21 |  |  | $ | (13,425) |  |  | 21 |  |  | $ | 27,051 |  |  | 21 |
Increase (decrease) in taxes resulting from: |  |  |  |  |  |  |  |  |  |  |  |
State income taxes-net of federal benefit |  | 1,246 |  |  | — |  |  | 1,194 |  |  | (2) |  |  | (1,212) |  |  | (1) |
Taxes on non U.S. earnings |  | (26,557) |  |  | (7) |  |  | (915) |  |  | 1 |  |  | (5,857) |  |  | (5) |
Valuation allowance |  | (3,720) |  |  | (1) |  |  | (9,365) |  |  | 15 |  |  | (6,703) |  |  | (5) |
Research and manufacturing incentive deductions and credits |  | (22,968) |  |  | (6) |  |  | (15,836) |  |  | 25 |  |  | (11,756) |  |  | (9) |
Stock compensation |  | (2,500) |  |  | (1) |  |  | 4,334 |  |  | (7) |  |  | (1,914) |  |  | (1) |
Repatriation tax |  | — |  |  | — |  |  | — |  |  | — |  |  | 14,108 |  |  | 11 |
GILTI and FDII |  | 27,369 |  |  | 8 |  |  | 36,067 |  |  | (56) |  |  | 6,437 |  |  | 5 |
Other |  | 8,124 |  |  | 2 |  |  | 1,047 |  |  | (2) |  |  | 1,142 |  |  | 1 |
|  | $ | 55,038 |  |  | 16 |  |  | $ | 3,101 |  |  | (5) |  |  | $ | 21,296 |  |  | 17 |
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law. The Tax Act includes changes to the U.S. statutory federal tax rate and puts into effect the migration from a worldwide system of taxation to a territorial system, among other things. The Tax Act includes certain changes such as introducing a new category of income, referred to as global intangible low tax income (“GILTI”), related to earnings taxed at a low rate of foreign entities without a significant fixed asset base, and imposes additional limitations on the deductibility of interest and officer compensation. The Company made a final accounting policy election to treat taxes due from future inclusions in U.S. taxable income related to GILTI as a current period expense when incurred. The Company previously considered the earnings in non-U.S. subsidiaries to be indefinitely reinvested and, accordingly, recorded no deferred income taxes. As a result of the Act, among other things, the Company determined it will repatriate earnings for all non-U.S. subsidiaries with cash in excess of working capital needs. Such distributions could potentially be subject to U.S. state tax in certain states and foreign withholding taxes. Foreign currency gains/losses related to the translation of previously taxed earnings from functional currency to U.S. dollars could also be subject to U.S. tax when distributed. The Company has estimated the associated withholding tax to be $22 million. During the fiscal years ended June 30, 2021, 2020, and 2019, net cash paid by the Company for income taxes was $60 million, $40 million, and $26 million, respectively. Our foreign subsidiaries in various tax jurisdictions operate under tax holiday arrangements. The impact of the tax holidays on our effective rate is a reduction in the rate of 3.22%, (8.91)% and 0.25% for the fiscal years ended June 30, 2021, 2020 and 2019, respectively, and the impact of the tax holidays on diluted earnings per share is $0.10, $0.07, and $0.00 for the fiscal years ended June 30, 2021, 2020, and 2019, respectively. The holiday related to II-VI Malaysia Advanced Manufacturing Center Sdn. Bhd will end during the fiscal year ended June 30, 2026, the holiday related to certain II-VI Laser Enterprise Philippines, Inc.'s business lines will end during the fiscal year ended June 30, 2022, and the holiday related to II-VI Vietnam Co., Ltd will end during the fiscal year ended June 30, 2024. The Company has the following gross operating loss carryforwards and tax credit carryforwards as of June 30, 2021:
Type |  | Amount |  | Expiration Date
($000) |  |  |  |
Tax credit carryforwards: |  |  |  |
Federal research and development credits |  | $ | 79,211 |  |  | June 2022-June 2041
Foreign tax credits |  | 20,493 |  |  | June 2022-June 2031
State tax credits |  | 15,434 |  |  | June 2022-June 2036
State tax credits (indefinite) |  | 39,125 |  |  | Indefinite
Operating loss carryforwards: |  |  |  |
Loss carryforwards - federal |  | $ | 47,755 |  |  | June 2022-June 2036
Loss carryforwards - state |  | 136,454 |  |  | June 2022-June 2041
Loss carryforwards - state (indefinite) |  | 13,076 |  |  | Indefinite
Loss carryforwards - foreign |  | 17,375 |  |  | June 2021-June 2040
Loss carryforwards - foreign (indefinite) |  | 48,884 |  |  | Indefinite
The Company has recorded a valuation allowance against the majority of the foreign and state loss and credit carryforwards. The Company’s U.S. federal loss carryforwards, federal research and development credit carryforwards, and certain state tax credits resulting from the Company’s acquisitions are subject to various annual limitations under Section 382 of the U.S. Internal Revenue Code. Changes in the liability for unrecognized tax benefits for the fiscal years ended June 30, 2021, 2020 and 2019 were as follows:
|  | 2021 |  | 2020 |  | 2019
($000) |  |  |  |  |  |
Beginning balance |  | $ | 42,803 |  |  | $ | 11,520 |  |  | $ | 9,892 |
Increases in current year tax positions |  | 3,940 |  |  | 1,506 |  |  | 191 |
Increases in prior year tax positions |  | — |  |  | — |  |  | 376 |
Acquired business |  | 5,341 |  |  | 31,791 |  |  | 6,036 |
Settlements |  | (7,514) |  |  | — |  |  | — |
Expiration of statute of limitations |  | (6,545) |  |  | (2,014) |  |  | (4,975) |
Ending balance |  | $ | 38,025 |  |  | $ | 42,803 |  |  | $ | 11,520 |
The Company classifies all estimated and actual interest and penalties as income tax expense. During fiscal years 2021, 2020 and 2019, there was $0.3 million, $0.6 million and $(0.1) million of interest and penalties within income tax expense, respectively. The Company had $3 million, $4 million and $1 million of interest and penalties accrued at June 30, 2021, 2020 and 2019, respectively. The Company has classified the uncertain tax positions as non-current income tax liabilities, as the amounts are not expected to be paid within one year. Including tax positions for which the Company determined that the tax position would not meet the more likely than not recognition threshold upon examination by the tax authorities based upon the technical merits of the position, the total estimated unrecognized tax benefit that, if recognized, would affect our effective tax rate, was approximately $26 million, $24 million and $6 million at June 30, 2021, 2020 and 2019, respectively. The Company expects a decrease of $2 million of unrecognized tax benefits during the next 12 months due to the expiration of statutes of limitation. Fiscal years 2018 to 2021 remain open to examination by the Internal Revenue Service, fiscal years 2016 to 2021 remain open to examination by certain state jurisdictions, and fiscal years 2010 to 2021 remain open to examination by certain foreign taxing jurisdictions. The Company is currently under examination in New York for the years ended June 30, 2018 though June 30, 2019 and under examination for certain subsidiary companies in India for the year ended March 31, 2016; Philippines for the year ended June 30, 2019; and Germany for the years ended June 30, 2012 through June 30, 2018. The Company believes its income tax reserves for these tax matters are adequate.

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