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Income Taxes | 12 Months Ended
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Jun. 30, 2023
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes The components of earnings (loss) before income taxes by jurisdiction were as follows:
Year Ended June 30, |  | 2023 |  | 2022 |  | 2021
($000) |  |  |  |  |  |
U.S. income (loss) |  | $ | (450,370) |  |  | $ | (62,721) |  |  | $ | 21,692 |
Non-U.S. income |  | 94,812 |  |  | 344,528 |  |  | 330,898 |
Earnings (loss) before income taxes |  | $ | (355,558) |  |  | $ | 281,807 |  |  | $ | 352,590 |
The components of the income tax expense (benefit) were as follows:
Year Ended June 30, |  | 2023 |  | 2022 |  | 2021
($000) |  |  |  |  |  |
Current: |  |  |  |  |  |
Federal |  | $ | 5 |  |  | $ | 1,569 |  |  | $ | 415 |
State |  | 3,867 |  |  | 768 |  |  | 1,632 |
Foreign |  | 106,850 |  |  | 52,865 |  |  | 53,362 |
Total Current |  | $ | 110,722 |  |  | $ | 55,202 |  |  | $ | 55,409 |
Deferred: |  |  |  |  |  |
Federal |  | $ | (106,044) |  |  | $ | (7,185) |  |  | $ | 13,744 |
State |  | (7,151) |  |  | (1,215) |  |  | (431) |
Foreign |  | (93,627) |  |  | 246 |  |  | (13,684) |
Total Deferred |  | $ | (206,822) |  |  | $ | (8,154) |  |  | $ | (371) |
Total Income Tax Expense (Benefit) |  | $ | (96,100) |  |  | $ | 47,048 |  |  | $ | 55,038 |
Principal items comprising deferred tax assets and liabilities were as follows:
June 30, |  | 2023 |  | 2022
($000) |  |  |  |
Deferred income tax assets |  |  |  |
Inventory capitalization |  | $ | 60,232 |  |  | $ | 20,562 |
Non-deductible accruals |  | 18,423 |  |  | 8,403 |
Accrued employee benefits |  | 40,292 |  |  | 11,320 |
Net-operating loss and credit carryforwards |  | 234,546 |  |  | 149,949 |
Share-based compensation expense |  | 16,729 |  |  | 10,125 |
Other |  | 9,256 |  |  | 3,565 |
Research and development capitalization |  | 85,473 |  |  | — |
Deferred revenue |  | 11,415 |  |  | 12,416 |
Right of use asset |  | 42,688 |  |  | 29,817 |
Valuation allowances |  | (97,180) |  |  | (55,420) |
Total deferred income tax assets |  | $ | 421,874 |  |  | $ | 190,737 |
Deferred income tax liabilities |  |  |  |
Tax over book accumulated depreciation |  | $ | (56,742) |  |  | $ | (28,701) |
Intangible assets |  | (988,580) |  |  | (134,972) |
Interest rate swap |  | (8,522) |  |  | (6,105) |
Interest rate cap |  | (10,734) |  |  | (4,102) |
Tax on unremitted earnings |  | (51,672) |  |  | (26,383) |
Lease liability |  | (41,426) |  |  | (28,983) |
Other |  | (6,757) |  |  | (7,036) |
Total deferred income tax liabilities |  | $ | (1,164,433) |  |  | $ | (236,282) |
Net deferred income taxes |  | $ | (742,559) |  |  | $ | (45,545) |
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, |  | 2023 |  | % |  | 2022 |  | % |  | 2021 |  | %
($000) |  |  |  |  |  |  |  |  |  |  |  |
Taxes at statutory rate |  | $ | (74,667) |  |  | 21 |  |  | $ | 59,179 |  |  | 21 |  |  | $ | 74,044 |  |  | 21 |
Increase (decrease) in taxes resulting from: |  |  |  |  |  |  |  |  |  |  |  |
State income taxes-net of federal benefit |  | (2,548) |  |  | 1 |  |  | (339) |  |  | — |  |  | 1,246 |  |  | — |
Taxes on non U.S. earnings |  | 191 |  |  | — |  |  | (2,704) |  |  | (1) |  |  | (26,557) |  |  | (7) |
Valuation allowance |  | 3,835 |  |  | (1) |  |  | (1,513) |  |  | (1) |  |  | (3,720) |  |  | (1) |
Research and manufacturing incentive deductions and credits |  | (29,416) |  |  | 8 |  |  | (24,341) |  |  | (9) |  |  | (22,968) |  |  | (6) |
Stock compensation |  | 18,661 |  |  | (5) |  |  | 2,095 |  |  | 1 |  |  | (2,500) |  |  | (1) |
GILTI and FDII |  | (7,195) |  |  | 2 |  |  | 4,866 |  |  | 2 |  |  | 27,369 |  |  | 8 |
Other |  | (4,961) |  |  | 1 |  |  | 9,805 |  |  | 4 |  |  | 8,124 |  |  | 2 |
|  | $ | (96,100) |  |  | 27 |  |  | $ | 47,048 |  |  | 17 |  |  | $ | 55,038 |  |  | 16 |
The Company is partially permanently reinvested and 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 $52 million. Additionally, the Company made a final accounting policy election to treat taxes due from future inclusions in U.S. taxable income related to global intangible low tax income (“GILTI”) as a current period expense when incurred. During the fiscal years ended June 30, 2023, 2022, and 2021, cash paid by the Company for income taxes was $90 million, $50 million, and $60 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 (2.27)%, 1.60% and 3.22% for the fiscal years ended June 30, 2023, 2022 and 2021, respectively, and the impact of the tax holidays on diluted earnings per share is $0.05, $0.04, and $0.10 for the fiscal years ended June 30, 2023, 2022, and 2021, respectively. The tax holiday related to Coherent Malaysia Sdn. Bhd will end during the fiscal year ended June 30, 2026 for certain business lines and new business lines will end during the fiscal year ended June 30, 2028, the tax holiday related to certain II-VI Laser Enterprise Philippines, Inc.’s business lines will end during the fiscal year ended June 30, 2026, the tax holiday related to certain II-VI Vietnam Co., Ltd business lines will end during the fiscal year ended June 30, 2024, and the tax holiday related to certain Coherent Singapore PTE Ltd business lines will end during the fiscal year ended June 30, 2027. The Company has the following gross operating loss carryforwards and tax credit carryforwards as of June 30, 2023:
Type |  | Amount |  | Expiration Date
($000) |  |  |  |
Tax credit carryforwards: |  |  |  |
Federal research and development credits |  | $ | 124,892 |  |  | June 2027-June 2043
Foreign tax credits |  | 26,850 |  |  | June 2030-June 2032
State tax credits |  | 19,203 |  |  | June 2024-June 2038
State tax credits (indefinite) |  | 76,968 |  |  | Indefinite
Operating loss carryforwards: |  |  |  |
Loss carryforwards - federal |  | $ | 40,411 |  |  | June 2024-June 2036
Loss carryforwards - federal (indefinite) |  | 2,182 |  |  | Indefinite
Loss carryforwards - state |  | 266,937 |  |  | June 2024-June 2043
Loss carryforwards - state (indefinite) |  | 32,863 |  |  | Indefinite
Loss carryforwards - foreign |  | 62,719 |  |  | June 2024-June 2033
Loss carryforwards - foreign (indefinite) |  | 136,326 |  |  | 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, foreign tax credits, 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, 2023, 2022 and 2021 were as follows:
|  | 2023 |  | 2022 |  | 2021
($000) |  |  |  |  |  |
Beginning balance |  | $ | 37,411 |  |  | $ | 38,025 |  |  | $ | 42,803 |
Increases in current year tax positions |  | 110 |  |  | 1,803 |  |  | 3,940 |
Acquired business |  | 86,077 |  |  | — |  |  | 5,341 |
Settlements |  | — |  |  | — |  |  | (7,514) |
Expiration of statute of limitations |  | (8,418) |  |  | (2,417) |  |  | (6,545) |
Ending balance |  | $ | 115,180 |  |  | $ | 37,411 |  |  | $ | 38,025 |
The Company classifies all estimated and actual interest and penalties as income tax expense. During fiscal years 2023, 2022 and 2021, there was $0.3 million, $0.4 million and $0.3 million of interest and penalties within income tax expense, respectively. The Company had $6 million, $3 million and $3 million of interest and penalties accrued at June 30, 2023, 2022 and 2021, 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 $92 million, $25 million and $26 million at June 30, 2023, 2022 and 2021, respectively. The majority of the liability can be offset by credit carryforwards and would not impact cash taxes if recognized. The Company expects a decrease of $1 million of unrecognized tax benefits during the next 12 months due to the expiration of statutes of limitation. Fiscal years 2018 and 2020 to 2023 remain open to examination by the Internal Revenue Service, fiscal years 2019 to 2023 remain open to examination by certain state jurisdictions, and fiscal years 2011 to 2023 remain open to examination by certain foreign taxing jurisdictions. The Company is currently under examination for certain subsidiary companies in Pennsylvania for the year ended June 30, 2020; Vietnam for the years ended September 30, 2018 through September 30, 2021; Singapore for the year ended September 30, 2020; Italy for the year ended September 30, 2019; Spain for the years ended September 30, 2020 through September 30, 2022; and Germany for the years ended September 30, 2011 through June 30, 2022. The Company believes its income tax reserves for these tax matters are adequate.

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