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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 components of loss from continuing operations before income taxes are as follows:
|  | Fiscal Years |  |  |  |
|  | 2020 |  | 2019 |  | 2018
|  | (Dollars in thousands) |  |  |  |
Loss before income taxes |  |  |  |  |  |
U.S. |  | $ | (165,260) |  |  | $ | (17,513) |  |  | $ | (16,604) |
International |  | (11,553) |  |  | (4,754) |  |  | 6,413 |
|  | $ | (176,813) |  |  | $ | (22,267) |  |  | $ | (10,191) |
The benefit for income taxes consists of:
|  | Fiscal Years |  |  |  |
|  | 2020 |  | 2019 |  | 2018
|  | (Dollars in thousands) |  |  |  |
Current: |  |  |  |  |  |
U.S. |  | $ | (925) |  |  | $ | (519) |  |  | $ | 2,151 |
International |  | 238 |  |  | 1,069 |  |  | 1,894 |
Deferred: |  |  |  |  |  |
U.S. |  | (3,353) |  |  | (2,303) |  |  | (73,728) |
International |  | (579) |  |  | (392) |  |  | (129) |
|  | $ | (4,619) |  |  | $ | (2,145) |  |  | $ | (69,812) |
The benefit for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory rate to earnings (loss) before income taxes, as a result of the following:
|  | Fiscal Years |  |  |  |
|  | 2020 |  | 2019 |  | 2018
U.S. statutory rate |  | 21.0 | % |  | 21.0 | % |  | 28.0 | %
State income taxes, net of federal income tax benefit |  | 4.0 |  |  | 0.5 |  |  | 14.8 |
Valuation allowance (1) |  | (29.4) |  |  | (14.5) |  |  | 560.8 |
Foreign income taxes at other than U.S. rates |  | (0.6) |  |  | 0.9 |  |  | (0.5) |
Work opportunity tax credits |  | 0.4 |  |  | 7.2 |  |  | 15.2 |
Deferred tax rate remeasurement |  | — |  |  | — |  |  | 99.0 |
Uncertain tax positions |  | (6.2) |  |  | 1.0 |  |  | (15.9) |
Stock-based compensation |  | 0.1 |  |  | 2.2 |  |  | (15.8) |
Capital loss |  | 15.0 |  |  | — |  |  | — |
Other, net (2) |  | (1.7) |  |  | (8.7) |  |  | (0.6) |
|  | 2.6 | % |  | 9.6 | % |  | 685.0 | %
_______________________________________________________________________________ (1)See Note 1 to the Consolidated Financial Statements. (2)The (1.7)% of Other, net in fiscal year 2020 includes the rate impact of goodwill derecognition and impairment and miscellaneous items of (1.2)% and (0.6)%, respectively. Miscellaneous items do not include the rate impact of any items in excess of 5% of computed tax. The (8.7)% of Other, net in fiscal year 2019 includes the rate impact of goodwill derecognition and miscellaneous items of (5.9)% and (2.8)%, respectively. Miscellaneous items do not include any items in excess of 5% of computed tax. The (0.6)% of Other, net in fiscal year 2018 does not include the rate impact of any items in excess of 5% of computed tax. The components of the net deferred tax assets and liabilities are as follows:
|  | June 30, |  |
|  | 2020 |  | 2019
|  | (Dollars in thousands) |  |
Deferred tax assets: |  |  |  |
Deferred rent |  | $ | — |  |  | $ | 3,816 |
Payroll and payroll related costs |  | 9,903 |  |  | 11,696 |
Net operating loss carryforwards |  | 64,402 |  |  | 48,208 |
Tax credit carryforwards |  | 37,072 |  |  | 36,966 |
Capital loss carryforwards |  | 14,978 |  |  | — |
Deferred franchise fees |  | 9,342 |  |  | 7,508 |
Operating lease liabilities |  | 202,940 |  |  | — |
Financing lease liabilities |  | 7,157 |  |  | 7,387 |
Other |  | 8,214 |  |  | 8,709 |
Subtotal |  | $ | 354,008 |  |  | $ | 124,290 |
Valuation allowance |  | (122,447) |  |  | (70,707) |
Total deferred tax assets |  | $ | 231,561 |  |  | $ | 53,583 |
Deferred tax liabilities: |  |  |  |
Goodwill and intangibles |  | $ | (40,904) |  |  | $ | (62,378) |
Operating lease assets |  | (197,304) |  |  | — |
Other |  | (7,269) |  |  | (9,129) |
Total deferred tax liabilities |  | $ | (245,477) |  |  | $ | (71,507) |
Net deferred tax liability |  | $ | (13,916) |  |  | $ | (17,924) |
Significant components of the valuation allowance which occurred during fiscal year 2020 are as follows: •On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief and Economic Security Act (CARES Act) in response to the COVID-19 pandemic. The CARES Act included several significant business tax provisions that, among other items, eliminated the taxable income limit and granted business a five-year carryback for certain net operating losses (NOLs), accelerated refunds of previously generated corporate alternative minimum tax (AMT) credits, temporarily loosened the business interest limitation under section 163(j) and corrected certain provisions under the Tax Cuts and Jobs Act (TCJA). In connection with the CARES Act, NOLs resulting from accounting periods which straddled December 31, 2017 are now considered definite-lived NOLs. Therefore, the Company established a U.S. valuation allowance against the NOLs generated during its fiscal year 2018 and recorded a net tax expense of $14.7 million in continuing operations. •The Company determined that it no longer had sufficient U.S. indefinite-lived taxable temporary differences to support realization of its U.S. indefinite-lived NOLs and its existing U.S. deferred tax assets that upon reversal are expected to generate indefinite-lived NOLs. As a result, the Company recorded an additional $17.0 million valuation allowance on its U.S. federal indefinite-lived deferred tax assets. •The Company further recognized a capital loss and established a corresponding valuation allowance of $14.9 million on investment outside basis previously impaired for financial accounting purposes. The Company also expects to receive a refund of approximately $1.4 million due to accelerated refunds of AMT credits as a result of the CARES Act. At June 30, 2020, the Company has tax effected federal, state, Canada, and U.K. net operating loss carryforwards of approximately $43.6, $16.7, $3.8 and $0.3 million, respectively. The Company's federal loss carryforward consists of $27.3 million that will expire from fiscal years 2034 to 2038 and $16.3 million that has no expiration. The state loss carryforwards consist of $15.7 million that will expire from fiscal years 2021 to 2040 and $1.0 million that has no expiration. The Canada loss carryforward will expire from fiscal years 2036 to 2040. The U.K. loss carryforward has no expiration. The Company's tax credit carryforward of $37.1 million primarily consist of Work Opportunity Tax Credits that will expire from fiscal years 2031 to 2040. The Company's capital loss carryforward of $14.9 million will expire in fiscal year 2025. We consider the earnings of certain non-U.S. subsidiaries to be indefinitely invested outside the United States. Accordingly, we have not recorded deferred taxes related to the U.S. federal and state income taxes and foreign withholding taxes on approximately $30.3 million of undistributed earnings of foreign subsidiaries which have been reinvested outside the United States. As a result of the Tax Cuts and Jobs Act of 2017, taxes payable on the remittance of such earnings is expected to be minimal. The Company files tax returns and pays tax primarily in the U.S., Canada, the U.K. and Luxembourg as well as states, cities, and provinces within these jurisdictions. The Company is no longer subject to IRS examinations for years before 2014. With limited exceptions, the Company is no longer subject to state and international income tax examination by tax authorities for years before 2012. A rollforward of the unrecognized tax benefits is as follows:
|  | Fiscal Years |  |  |  |
|  | 2020 |  | 2019 |  | 2018
|  | (Dollars in thousands) |  |  |  |
Balance at beginning of period |  | $ | 2,763 |  |  | $ | 3,027 |  |  | $ | 1,388 |
Additions based on tax positions related to the current year, primarily salon vendition activity and tax positions related to a capital loss |  | 11,985 |  |  | 287 |  |  | 553 |
(Reductions)/additions based on tax positions of prior years |  | (223) |  |  | (154) |  |  | 1,608 |
Reductions on tax positions related to the expiration of the statute of limitations |  | (480) |  |  | (397) |  |  | (177) |
Settlements |  | — |  |  | — |  |  | (345) |
Balance at end of period |  | $ | 14,045 |  |  | $ | 2,763 |  |  | $ | 3,027 |
If the Company were to prevail on all unrecognized tax benefits recorded, a net benefit of approximately $1.3 million would be recorded in the effective tax rate. Interest and penalties associated with unrecognized tax benefits are recorded within income tax expense. During each of the fiscal years 2020, 2019 and 2018, the Company recorded interest and penalties of approximately $0.1 million as additions to the accrual, net of the respective reversal of previously accrued interest and penalties. As of June 30, 2020, the Company had accrued interest and penalties related to unrecognized tax benefits of $1.1 million. This amount is not included in the gross unrecognized tax benefits noted above. It is reasonably possible the amount of the unrecognized tax benefit with respect to certain of our unrecognized tax positions will increase or decrease during the next fiscal year. However, an estimate of the amount or range of the change cannot be made at this time.

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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