XML 36 R20.htm IDEA: XBRL DOCUMENT v3.22.2.2
Income Taxes
 12 Months Ended
Jun. 30, 2022
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
    The provision for income taxes is comprised of:
Year Ended June 30, 
202220212020
(in thousands)
U.S. federal taxes:
Current$645 $31 $(1,673)
Deferred2,260 1,955 22 
Non-U.S. taxes:
Current7,749 2,344 1,940 
Deferred28,599 (396)58 
State taxes, net of federal benefit:
Current5 1 1 
Total provision for income taxes$39,258 $3,935 $348 
The reconciliation of the federal statutory income tax rate to our effective income tax rate is as follows (in percentage):

 Year Ended June 30,
 202220212020
United States statutory rate21.0 %21.0 %21.0 %
Stock-based compensation0.0 0.1 — 
Foreign taxes, net(14.3)(14.4)(36.1)
Outside basis difference on equity method investment1.2 — — 
Research and development credit(0.3)(2.4)8.0 
Non-deductible expenses0.5 2.4 (1.0)
U.S. Tax Act deferred tax re-measurement— — 6.2 
Foreign Derived Intangible Income Deduction(0.3)— — 
Other0.1 (0.2)— 
 7.9 %6.5 %(1.9)%
    The domestic and foreign components of income before taxes are:
 Year Ended June 30, 
 202220212020
(in thousands)
U.S. operations$16,684 $9,622 $3,549 
Non-U.S. operations478,386 50,602 (21,458)
Loss before income taxes$495,070 $60,224 $(17,909)
    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, 
 20222021
(in thousands)
Deferred tax assets:
Accrued compensation$5,742 $3,954 
Net operating loss carryforwards61 22,539 
Depreciation4,365 7,924 
Tax credits15,079 15,550 
Operating lease liabilities5,807 7,292 
Capitalized intangible assets— 9,982 
Accruals and reserves643 1,113 
Total deferred tax assets31,697 68,354 
Valuation allowance(5,755)(41,474)
Total deferred tax assets, net of valuation allowance25,942 26,880 
Deferred tax liabilities:
Depreciation and amortization(18,909)(17,193)
Right of use assets(5,579)(6,968)
Investments(29,619)— 
Total deferred tax liabilities(54,107)(24,161)
Net deferred tax assets/(liabilities)
$(28,165)$2,719 
The breakdown between deferred tax assets and liabilities is as follows:
 June 30, 
 20222021
(in thousands)
Long-term deferred tax assets$592 $5,167 
Long-term deferred tax liabilities(28,757)(2,448)
Net deferred tax assets/(liabilities)$(28,165)$2,719 

The Company’s valuation allowance related to deferred income taxes as reflected in the consolidated balance sheets was $5.8 million and $41.5 million as of June 30, 2022 and 2021, respectively. The change in valuation allowance for June 30, 2022 and 2021 was a decrease of $35.7 million and an increase of $3.6 million, respectively.

At June 30, 2022 and 2021, the Company provided a valuation allowance for its state research and development credit carryforward deferred tax assets of $5.8 million for both years, as it generated more state tax credits each year than it can utilize. The Company intends to maintain a 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.

At June 30, 2021, 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 $35.7 million. The valuation allowance related to the deferred tax assets of the JV Company was reduced to $0 at June 30, 2022 as a result of the deconsolidation of the JV Company in December 2021.

At June 30, 2022, the Company had federal research and development tax credit carryforwards of approximately $8.9 million. The federal tax credits begin to expire in 2030, if not utilized.  At June 30, 2022, the Company had $0.9 million of state net operating loss carryforwards and had tax credit carryforwards of approximately $7.8 million. Approximately $0.2
million of the state tax credits begin to expire in 2023, if not utilized. The remaining $7.6 million of the state tax credits carryforward indefinitely.

The Company has not provided for withholding taxes on the undistributed earnings of its foreign subsidiaries because it intends to reinvest such earnings indefinitely. However, we have recorded a deferred tax liability of $29.6 million at June 30, 2022 related to our investment in the JV Company. As of June 30, 2022, the cumulative amount of undistributed earnings of its foreign entities considered permanently reinvested is $314.7 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, 2019 to June 30, 2022 is as follows:
 Year Ended June 30, 
 202220212020
(in thousands)
Balance at beginning of year$7,645 $7,126 $7,150 
Additions based on tax positions related to the current year1,121 677 333 
Reductions based on tax positions related to prior years(40)(41)(114)
Reductions due to lapse of applicable statute of limitations(117)(117)(243)
Balance at end of year$8,609 $7,645 $7,126 
At June 30, 2022, the total unrecognized tax benefits of $8.6 million included $6.6 million of unrecognized tax benefits that have been netted against the related deferred tax assets. The remaining $2.0 million of unrecognized tax benefits was recorded within long-term income tax payable on the Company's consolidated balance sheet as of June 30, 2022. The Company cannot reasonably estimate the timing and amount of potential cash settlements on the unrecognized tax benefits.
The total unrecognized tax benefits of $8.6 million at June 30, 2022 included $5.6 million that, if recognized, would reduce the effective income tax rate in future periods. It is reasonably possible that the Company will recognize approximately $0.01 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, 2022 was $0.2 million, of which $32 thousand was recognized in the year ended June 30, 2022. The amount of interest and penalties accrued at June 30, 2021 was $0.1 million, of which $5 thousand was recognized in the year ended June 30, 2021.
The Company files its income tax returns in the United States and in various foreign jurisdictions. The tax years 2001 to 2022 remain open to examination by U.S. federal and state tax authorities. The tax years 2014 to 2022 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 legislation commonly known as the Tax Cuts and Jobs Act (“the Tax Act”), which significantly changed 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 toward a territorial system through a “participation exemption” deduction for certain foreign-source dividends, (3) eliminating the corporate alternative minimum tax (AMT) and changing how existing AMT credits can be realized, (4) bonus depreciation that allows 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 Company is not currently subject to the Base Erosion and Anti-Abuse (BEAT) tax, which is a tax imposed on certain entities who make payments to their non U.S. affiliates, where such payments reduce the U.S. tax base. The BEAT tax is imposed at a rate of 10% on Adjusted Taxable Income, excluding certain payments to foreign related entities. It is an incremental tax over and above the corporate income tax and is recorded as a period cost. It is possible that this tax could be applicable in future periods, which would cause an increase to the effective tax rate and cash taxes.

U.S. Coronavirus Aid, Relief and Economic Security Act” (“CARES Act”), Enacted March 27, 2020

On March 27, 2020, the United States enacted 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.

“U.S. Consolidated Appropriations Act, 2021” (“CAA 2021”), Enacted December 27, 2020

On December 27, 2020, the United States enacted the Consolidated Appropriations Act, 2021, which made changes to existing U.S. tax laws. There was no material impact of the tax law changes included in the Consolidated Appropriations Act, 2021 to the Company.

“The American Rescue Plan Act of, 2021”, Enacted March 11, 2021

On March 11, 2021, the United States enacted the American Rescue Plan Act of 2021, which made changes to existing U.S. tax laws. There was no material impact of the tax law changes included in the American Rescue Plan Act of 2021 to the Company.

“The Chip and Science Act of 2022”, Enacted August 2, 2022
In August 2022 the U.S. enacted the Chip and Science Act of 2022 (the Chips Act). The Chips Act provides incentives to semiconductor chip manufacturers in the United States, including providing a 25% manufacturing investment credits for investments in semiconductor manufacturing property placed in service after December 31, 2022, for which construction begins before January 1, 2027. Property investments qualify for the 25% credit if, among other requirements, the property is integral to the operation of an advanced manufacturing facility, defined as having a primary purpose of manufacturing semiconductors or semiconductor manufacturing equipment. Currently, we are evaluating the impact of the Chips Act to us.

Altera Litigation

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 not recorded any benefit related to the Altera Corporation Tax Court decision in any period through June 2022. The Company will continue to monitor ongoing developments and potential impact to its financial statements.