INCOME TAXES

3 Months Ended

Sep. 30, 2021

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 7: INCOME TAXES

We file a consolidated federal income tax return in the U.S. with the Internal Revenue Srvice (IRS) and file tax returns in various state, local, and foreign jurisdictions. Tax returns are typically examined and either settled upon completion of the examination or through the appeals process. On July 14, 2021 we filed a U.S. federal income tax form 1139 carryback claim to utilize net operating losses against income earned in tax years 2015 and 2016. Filing this carryback claim has opened our 2015 and 2016 tax years to examination. Our U.S. federal income tax returns for 2017, 2014 and all years prior to 2014 are closed. Consequently, our U.S. federal income tax returns for 2015, 2016, 2018 and later years remain open for examination. With respect to state and local jurisdictions and countries outside of the U.S., we are typically subject to examination for three to six years after the income tax returns have been filed. Although the outcome of tax audits is always uncertain, we believe that adequate amounts of tax, interest, and penalties have been provided for in the accompanying consolidated financial statements for any adjustments that might be incurred due to federal, state, local or foreign audits.

We had gross unrecognized tax benefits of $264.3 million as of September 30, 2021 and June 30, 2021. The gross unrecognized tax benefits were unchanged during the three months ended September 30, 2021. We believe it is reasonably possible that the balance of unrecognized tax benefits could decrease by approximately $67.9 million within the next twelve months. The anticipated decrease is due to the expiration of statutes of limitations and anticipated closure of various state matters currently under examination. For such matters where a change in the balance of unrecognized tax benefits is not yet deemed reasonably possible, no estimate has been included.

A discrete income tax benefit of $0.3 million was recorded in the three months ended September 30, 2021 compared to a discrete income tax expense of $31.8 million in the three months ended September 30, 2020. The discrete tax benefit recorded in the current period primarily resulted from interest recorded on existing uncertain tax benefits. The discrete tax expense recorded in the prior period primarily resulted from uncertain tax benefits related to our 2020 taxable loss carryback to prior years.

Our effective tax rate for continuing operations, including the effects of discrete tax items, was 24.0% and (84.9)% for the three months ended September 30, 2021 and 2020, respectively. Discrete items increased the effective tax rate by 0.1% for the three months ended September 30, 2021 and decreased the effective tax rate by 96.5% for the three months ended September 30, 2020. Due to the loss in the quarter, a discrete tax expense decreases the tax rate while an item of discrete benefit increases the tax rate. The impact of discrete tax items combined with the seasonal nature of our business can cause the effective tax rate in our first quarter to be significantly different than the rate for our full fiscal year.

Consistent with prior years, our pretax loss for the three months ended September 30, 2021 is expected to be offset by income in our third and fourth quarters due to the established pattern of seasonality in our primary business operations. As such, management has determined that it is more-likely-than-not that realization of tax benefits recorded in our financial statements will occur within our fiscal year. The amount of tax benefit recorded for the three months ended September 30, 2021 reflects management’s estimate of the annual effective tax rate applied to year-to-date loss from continuing operations adjusted for the tax impact of discrete items for the periods presented.