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Income Taxes | 12 Months Ended
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Jun. 30, 2020
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes The provision for income taxes is comprised of:
| Year Ended June 30,
| 2020 |  | 2019 |  | 2018
|  |  | (in thousands) |  |
U.S. federal taxes: |  |  |  |
Current | $ | (1,673 | ) |  | $ | (57 | ) |  | $ | 55 |
Deferred | 22 |  |  | (510 | ) |  | (1,943 | )
Non-U.S. taxes: |  |  |  |
Current | 1,940 |  |  | 1,765 |  |  | 2,898 |
Deferred | 58 |  |  | 55 |  |  | (298 | )
State taxes, net of federal benefit: |  |  |  |
Current | 1 |  |  | 3 |  |  | (4 | )
Total provision for income taxes | $ | 348 |  |  | $ | 1,256 |  |  | $ | 708 |
The reconciliation of the federal statutory income tax rate to our effective income tax rate is as follows (in percentage):
| Year Ended June 30,
| 2020 |  | 2019 |  | 2018
United States statutory rate | 21.0 | % |  | 21.0 | % |  | 28.1 | %
Stock-based compensation | — |  |  | 0.1 |  |  | (1.4 | )
Foreign taxes, net | (36.1 | ) |  | (40.9 | ) |  | 39.5 |
Research and development credit | 8.0 |  |  | 11.7 |  |  | (17.1 | )
Non-deductible expenses | (1.0 | ) |  | (2.7 | ) |  | 7.0 |
U.S. Tax Act deferred tax re-measurement | 6.2 |  |  | — |  |  | (44 | )
Other | — |  |  | 1.4 |  |  | 0.4 |
| (1.9 | )% |  | (9.4 | )% |  | 12.5 | %
The domestic and foreign components of income before taxes are:
| Year Ended June 30,
| 2020 |  | 2019 |  | 2018
|  |  | (in thousands) |  |  |
U.S. operations | $ | 3,549 |  |  | $ | 4,100 |  |  | $ | 4,219 |
Non-U.S. operations | (21,458 | ) |  | (17,482 | ) |  | 1,437 |
Loss before income taxes | $ | (17,909 | ) |  | $ | (13,382 | ) |  | $ | 5,656 |
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities are as follows:
| June 30,
| 2020 |  | 2019
| (in thousands)
Deferred tax assets: |  |  |
Accrued compensation | $ | 1,954 |  |  | $ | 1,428 |
Net operating loss carryforwards | 19,870 |  |  | 16,782 |
Depreciation | 8,149 |  |  | 10,036 |
Tax credits | 13,909 |  |  | 10,882 |
Operating lease liabilities | 6,649 |  |  | — |
Capitalized intangible assets | 10,367 |  |  | 11,981 |
Accruals and reserves | 1,832 |  |  | 1,000 |
Total deferred tax assets | 62,730 |  |  | 52,109 |
Valuation allowance | (37,827 | ) |  | (35,420 | )
Total deferred tax assets, net of valuation allowance | 24,903 |  |  | 16,689 |
Deferred tax liabilities: |  |  |
Depreciation and amortization | (14,097 | ) |  | (12,243 | )
Right of use assets | (6,453 | ) |  | — |
Accruals and reserves | (83 | ) |  | (90 | )
Total deferred tax liabilities | (20,633 | ) |  | (12,333 | )
Net deferred tax assets | $ | 4,270 |  |  | $ | 4,356 |
The breakdown between deferred tax assets and liabilities is as follows:
| June 30,
| 2020 |  | 2019
| (in thousands)
Long-term deferred tax assets | $ | 4,766 |  |  | $ | 4,822 |
Long-term deferred tax liabilities | (496 | ) |  | (466 | )
Net deferred tax assets | $ | 4,270 |  |  | $ | 4,356 |
The Company’s valuation allowance related to deferred income taxes as reflected in the consolidated balance sheets was $37.8 million and $35.4 million as of June 30, 2020 and 2019, respectively. The change in valuation allowance for June 30, 2020 and 2019 was an increase of $2.4 million and $5.3 million, respectively. During the quarter ended September 30, 2016, the Company fulfilled its obligations to contribute certain packaging equipment as required by the JV Agreement by transferring the legal titles of such equipment to the JV Company. As a result of the transfer, the Company reduced its deferred tax assets by $6.6 million and recorded a $6.6 million in prepaid tax asset, which is amortized to tax expense over the useful life of the assets. On July 1, 2017, we adopted ASU 2016-16, Intra-Entity Transfers of Assets other than Inventory, which resulted in a de-recognition of a prepaid tax asset of $5.5 million related to the prior period intra-entity asset transfer with the JV Company, with an offsetting reduction to retained earnings. In July 2017, the Company contributed to the JV Company certain China patent rights and certain manufacturing related IP, which per ASU 2016-16, resulted in a deferred tax asset of $12.9 million on the difference between the tax basis and the consolidated U.S. GAAP book value of $0. Because the JV Company provided a full valuation allowance, there was no change to our net deferred tax assets for the initial adoption of ASU 2016-16. At June 30, 2020 and 2019, the Company provided a valuation allowance for its state research and development credit carryforward deferred tax assets of $5.4 million and $5.1 million, respectively, as it generated more state tax credits each year than it can utilize. The Company intends to maintain a partial valuation allowance equal to the state research and development credit carryforwards in excess of the state net deferred tax liabilities on all other state book/tax differences and net operating loss carryforward. Furthermore, the Company provided a valuation allowance mainly for the net operating loss, fixed asset and intangible asset related to deferred tax assets of the JV Company totaling $32.4 million and $30.3 million as of June 30, 2020 and 2019, respectively. The Company intends to maintain a valuation allowance equal to the JV Company’s net deferred tax assets until sufficient positive evidence exists to support reversal of the valuation allowance. At June 30, 2020, the Company had federal net operating loss and research and development tax credit carryforwards of approximately $18.0 million and $8.3 million, respectively. The federal net operating losses begin to expire in 2038 and the tax credits begin to expire in 2026, if not utilized. At June 30, 2020, the Company had $0.8 million of state net operating loss carryforwards and had tax credit carryforwards of approximately $7.1 million. Approximately $0.6 million of the state tax credits begin to expire in 2021, if not utilized. The remaining $6.5 million of the state tax credits carryforward indefinitely. At June 30, 2020, the JV Company had $108.0 million of net operating loss carryforwards which begin to expire in 2021, if not utilized. The Company has not provided for withholding taxes on the undistributed earnings of its foreign subsidiaries because it intends to reinvest such earnings indefinitely. As of June 30, 2020, the cumulative amount of undistributed earnings of its foreign entities considered permanently reinvested is $159.4 million. The determination of the unrecognized deferred tax liability on these earnings is not practicable. Should the Company decide to remit this income to its Bermuda parent company in a future period, its provision for income taxes may increase materially in that period. A reconciliation of the beginning and ending amount of unrecognized tax benefits from July 1, 2017 to June 30, 2020 is as follows:
| Year Ended June 30,
| 2020 |  | 2019 |  | 2018
| (in thousands)
Balance at beginning of year | $ | 7,150 |  |  | $ | 7,143 |  |  | $ | 6,589 |
Additions based on tax positions related to the current year | 333 |  |  | 417 |  |  | 721 |
Reductions based on tax positions related to prior years | (114 | ) |  | (271 | ) |  | (11 | )
Reductions due to lapse of applicable statute of limitations | (243 | ) |  | (139 | ) |  | (156 | )
Balance at end of year | $ | 7,126 |  |  | $ | 7,150 |  |  | $ | 7,143 |
At June 30, 2020, the total unrecognized tax benefits of $7.1 million included $6.3 million of unrecognized tax benefits that have been netted against the related deferred tax assets. The remaining $0.8 million of unrecognized tax benefits was recorded within long-term income tax payable on the Company's consolidated balance sheet as of June 30, 2020. The Company cannot reasonably estimate the timing and amount of potential cash settlements on the unrecognized tax benefits. The total unrecognized tax benefits of $7.1 million at June 30, 2020 included $4.3 million that, if recognized, would reduce the effective income tax rate in future periods. It is reasonably possible that the Company will recognize approximately $0.1 million reduction to its uncertain tax positions during the next twelve months, related to potential expiration of the relevant statute of limitations. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. To the extent accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision in the period that such determination is made. The amount of interest and penalties accrued at June 30, 2020 was $0.1 million, of which $(0.03) million was recognized in the year ended June 30, 2020. The amount of interest and penalties accrued at June 30, 2019 was $0.2 million, of which $0.03 million was recognized in the year ended June 30, 2019. The Company files its income tax returns in the United States and in various foreign jurisdictions. The tax years 2001 to 2020 remain open to examination by U.S. federal and state tax authorities. The tax years 2013 to 2020 remain open to examination by foreign tax authorities. The Company's income tax returns are subject to examinations by the Internal Revenue Service and other tax authorities in various jurisdictions. In accordance with the guidance on the accounting for uncertainty in income taxes, the Company regularly assesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of its provision for income taxes. These assessments can require considerable estimates and judgments. If the Company's estimate of income tax liabilities proves to be less than the ultimate assessment, then a further charge to expense would be required. If events occur and the payment of these amounts ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period when the Company determines the liabilities are no longer necessary. U.S. Tax Cuts and Jobs Act, Enacted December 22, 2017 On December 22, 2017, the United States enacted tax reform legislation through the Tax Cuts and Jobs Act (“the Tax Act”), which significantly changes the existing U.S. tax laws, including, but not limited to, (1) a reduction in the corporate tax rate from 35% to 21%, (2) a move from a worldwide tax system to a territorial system, (3) eliminating the corporate alternative minimum tax (AMT) and changing how existing AMT credits can be realized, (4) bonus depreciation that will allow for full expensing of qualified property, (5) creating a new limitation on deductible interest expense and (6) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017. The SEC staff issued Staff Accounting Bulletin No. 118 ("SAB 118"), which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under Accounting Standards Codification Topic 740 ("ASC 740"). In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax law that were in effect immediately before the enactment of the Tax Act. In connection with our initial analysis of the impact of the Tax Act, we reported a second quarter of fiscal year 2018 discrete tax benefit of $2.7 million related to the re-measurement of certain deferred tax assets and liabilities. The $2.7 million tax benefit related to the tax rate re-measurement estimated in the second quarter of fiscal year 2018 was reduced downward by $0.2 million in the fourth quarter of fiscal year 2018, to $2.5 million. In addition, we used a 28% U.S. federal tax rate to measure our U.S. federal income tax expense for fiscal year 2018, down from the 34% U.S. federal income tax rate used in first quarter of fiscal year 2018. U.S. Coronavirus Aid, Relief and Economic Security Act” (“CARES Act”), Enacted March 27, 2020 On March 27, 2020, the United States enacted the Coronavirus Aid, Relief and Economic Security Act (“the CARES Act”), which made the changes to existing U.S. tax laws, including, but not limited to, (1) allowing U.S. federal net operating losses originated in the 2018, 2019 or 2020 tax years to be carried back five years to recover taxes paid based upon taxable income in the prior five years, (2) eliminated the 80% of taxable income limitation on net operating losses for the 2018, 2019 and 2020 tax years (the 80% limitation will be reinstated for tax years after 2020), (3) accelerating the refund of prior year alternative minimum tax credits, (4) modifying the bonus depreciation for qualified improvement property and (5) modifying the limitation on deductible interest expense. As a result of the ability to carryback net operating losses from the June 2018 and June 2019 years to the June 2015 to June 2017 tax years, net operating losses which were previously tax-effected using the current 21% U.S. federal tax rate were revalued to the U.S. tax rates in effect for the June 2015 to June 2017 tax years due to the ability of receiving tax refunds for the taxes paid in these years. Accordingly, we reported a discrete tax benefit of $1.1 million in the third quarter of fiscal year 2020 related to the re-measurement of the net operating losses that could be realized via the new net operating loss carryback provisions. On July 27, 2015, in Altera Corp. v. Commissioner, the U.S. Tax Court issued an opinion related to the treatment of stock-based compensation expense in an intercompany cost-sharing arrangement. In the July 2015 ruling, the Tax Court concluded that the sharing of the cost of employee stock compensation in a company’s cost-sharing arrangement was invalid under the U.S. Administrative Procedures Act. In June 2019, a panel of the Ninth Circuit of the U.S. Court of Appeals reversed this decision. In July 2019, Altera petitioned U.S. Court of Appeals for the Ninth Circuit to hold an en banc rehearing of the case. The petition was subsequently denied by the Ninth Circuit. Altera appealed the case to the U.S. Supreme Court in February 2020, but the U.S. Supreme Court declined to hear the case in June 2020, leaving intact the U.S. Court of Appeals for the Ninth Circuit’s decision. AOS has no t recorded any benefit related to the Altera Corporation Tax Court decision in any period through June 2020. We will continue to monitor ongoing developments and potential impact to our financial statements.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 + Details
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