Income Taxes

2 Months Ended

Jun. 30, 2021

Income Tax Disclosure [Abstract]

Income Taxes

NOTE 9: INCOME TAXES

We file a consolidated federal income tax return in the U.S. with the Internal Revenue Service (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. Consequently, our U.S. federal income tax returns for 2015, 2016, 2018 and later years remain open for examination. Our U.S. federal income tax returns for 2017, 2014 and all years prior to 2014 are closed. 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.

The components of income (loss) from continuing operations upon which domestic and foreign income taxes have been provided are as follows:

(in 000s)
	Year Ended June 30, 2022		Two Months Ended June 30, 2021 (Transition Period)		Year Ended April 30, 2021		Year Ended April 30, 2020
Domestic	$	478,166	$	145,714	$	489,499	$	56,121
Foreign	180,903		(24,719)		179,237		(59,495)
	$	659,069	$	120,995	$	668,736	$	(3,374)

We operate in multiple income tax jurisdictions both within the U.S. and internationally. Accordingly, management must determine the appropriate allocation of income to each of these jurisdictions based on transfer pricing analyses of comparable companies and predictions of future economic conditions. Although these intercompany transactions reflect arm’s length terms and the proper transfer pricing documentation is in place, transfer pricing terms and conditions may be scrutinized by local tax authorities during an audit and any resulting changes may impact our mix of earnings in countries with differing statutory tax rates.

The reconciliation between the income tax provision and the amount computed by applying the statutory U.S. federal tax rate to income taxes for continuing operations is as follows:

	Year Ended June 30, 2022		Two Months Ended June 30, 2021 (Transition Period)		Year Ended April 30, 2021		Year Ended April 30, 2020
U.S. statutory tax rate	21.0	%	21.0	%	21.0	%	21.0	%
Change in tax rate resulting from:
State income taxes, net of federal income tax benefit	2.1	%	2.9	%	1.8	%	20.4	%
Earnings taxed in foreign jurisdictions	(2.4)	%	0.8	%	(1.2)	%	619.4	%
Permanent differences	0.9	%	0.4	%	0.5	%	(257.5)	%
Impairment of goodwill	—	%	—	%	—	%	(832.5)	%
Uncertain tax positions	(6.3)	%	2.9	%	7.5	%	508.3	%
U.S. tax on income from foreign affiliates	2.0	%	(1.6)	%	1.0	%	(247.4)	%
Remeasurement of deferred tax assets and liabilities	(0.2)	%	(1.0)	%	(0.1)	%	117.6	%
Changes in prior year estimates	0.1	%	—	%	(0.5)	%	55.5	%
Federal income tax credits	(2.6)	%	(0.5)	%	(0.9)	%	216.3	%
Tax impacts of stock-based compensation vesting	—	%	—	%	—	%	44.8	%
Tax benefit due to NOL carryback under CARES Act	(0.1)	%	—	%	(17.5)	%	—	%
Tax deductible write-down of foreign investment	0.6	%	(0.2)	%	(1.7)	%	—	%
Change in valuation allowance - domestic	0.2	%	—	%	(0.2)	%	37.1	%
Change in valuation allowance - foreign	(0.3)	%	0.3	%	1.7	%	20.6	%
Other	(0.1)	%	(0.3)	%	0.3	%	(41.2)	%
Effective tax rate	14.9	%	24.7	%	11.7	%	282.4	%

Our effective tax rate for continuing operations was 14.9%, 11.7% and 282.4% for fiscal years ended June 30, 2022, April 30, 2021 and April 30, 2020, respectively, and was 24.7% for the Transition Period. The increase in the effective tax rate for the year ended June 30, 2022 compared to the year ended April 30, 2021 is primarily due to the impact of net operating loss carrybacks under the CARES Act in 2021 to years with a statutory tax rate of 35% offset in part by the expiration of statute of limitation on certain uncertain tax positions during the current year.

The components of income tax expense (benefit) for continuing operations are as follows:

(in 000s)
	Year Ended June 30, 2022		Two Months Ended June 30, 2021 (Transition Period)		Year Ended April 30, 2021		Year Ended April 30, 2020
Current:
Federal	$	121,319	$	11,563	$	58,834	$	18,048
State	25,108		743		12,000		(16,614)
Foreign	8,956		(1,481)		26,032		1,991
	155,383		10,825		96,866		3,425
Deferred:
Federal	(58,487)		16,950		2,493		1,703
State	(2,016)		4,809		(11,368)		(1,516)
Foreign	3,543		(2,708)		(9,467)		(13,142)
	(56,960)		19,051		(18,342)		(12,955)
Total income taxes (benefit) for continuing operations	$	98,423	$	29,876	$	78,524	$	(9,530)

The significant components of deferred tax assets and liabilities are reflected in the following table:

(in 000s)
As of	June 30, 2022		June 30, 2021		April 30, 2021
Deferred tax assets:
Accrued expenses	$	1,917	$	1,735	$	3,576
Deferred revenue	35,519		7,644		10,445
Allowance for credit losses and related reserves	30,565		34,411		33,027
Deferred and stock-based compensation	6,964		7,111		24,712
Net operating loss carry-forward	105,710		108,446		104,013
Lease liabilities	109,397		114,700		112,249
Federal tax benefits related to state unrecognized tax benefits	19,115		16,177		16,682
Property and equipment	9,846		35,712		40,138
Intangibles - intellectual property	77,123		85,374		86,711
Valuation allowance	(55,172)		(55,784)		(55,401)
Total deferred tax assets	340,984		355,526		376,152
Deferred tax liabilities:
Prepaid expenses and other	(4,723)		(9,033)		(11,927)
Lease right of use assets	(107,445)		(111,762)		(109,726)
Income tax method change	(5,892)		(56,249)		(56,257)
Intangibles	(59,424)		(71,941)		(72,650)
Total deferred tax liabilities	(177,484)		(248,985)		(250,560)
Net deferred tax assets	$	163,500	$	106,541	$	125,592

A reconciliation of the deferred tax assets and liabilities and the corresponding amounts reported in the consolidated balance sheets is as follows:

(in 000s)
As of	June 30, 2022		June 30, 2021		April 30, 2021
Deferred income tax assets	$	163,500	$	142,981	$	141,836
Deferred tax liabilities	—		(36,440)		(16,244)
Net deferred tax asset	$	163,500	$	106,541	$	125,592

Changes in our valuation allowance for fiscal years ended June 30, 2022, April 30, 2021 and April 30, 2020 and for the Transition Period are as follows:

(in 000s)
	Year Ended June 30, 2022		Two Months Ended June 30, 2021 (Transition Period)		Year Ended April 30, 2021		Year Ended April 30, 2020
Balance, beginning of the period	$	55,784	$	55,401	$	45,124	$	47,070
Additions charged to costs and expenses	4,752		389		13,492		2,151
Deductions	(5,364)		(6)		(3,215)		(4,097)
Balance, end of the period	$	55,172	$	55,784	$	55,401	$	45,124

Our valuation allowance on deferred tax assets has a net decrease of $0.6 million during the current period. The gross increase in valuation allowance of $4.8 million is related to net operating loss deferred tax assets generated by foreign and domestic losses that we do not expect to utilize in future years. This increase is offset by a $5.4 million decrease to our valuation allowance balance for adjustments to certain foreign net operating losses utilized in the current fiscal year and net operating losses that are no longer available.

Certain of our subsidiaries file stand-alone returns in various state, local and foreign jurisdictions, and others join in filing consolidated or combined returns in such jurisdictions. As of June 30, 2022, we had net operating losses in various states and foreign jurisdictions. The amount of state and foreign net operating losses varies by taxing jurisdiction. We maintain a valuation allowance of $22.7 million on state and federal net operating losses and $31.1 million on foreign net operating losses for the portion of such loses that, more likely than not, will not be realized. Of the $105.7 million of net operating loss deferred tax assets, $26.7 million will expire in varying amounts during fiscal years 2023 through 2041 and the remaining $79.0 million have no expiration. Of the total net operating loss deferred tax assets, $51.9 million are more likely than not to be realized.

We do not currently intend to repatriate non-borrowed funds held by our foreign subsidiaries in a manner that would trigger a tax liability; therefore, no provision has been made for income taxes that might be payable upon remittance of such earnings. The amount of unrecognized tax liability on these foreign earnings, net of expected foreign tax credits, is immaterial as of June 30, 2022.

Changes in unrecognized tax benefits for fiscal years ended June 30, 2022, April 30, 2021 and April 30, 2020 and for the Transition Period are as follows:

(in 000s)
	Year Ended June 30, 2022		Two Months Ended June 30, 2021 (Transition Period)		Year Ended April 30, 2021		Year Ended April 30, 2020
Balance, beginning of the period	$	264,323	$	264,810	$	168,062	$	185,144
Additions based on tax positions related to prior years	2,499		485		121,364		1,501
Reductions based on tax positions related to prior years	(5,332)		(1,209)		(34,470)		(10,128)
Additions based on tax positions related to the current year	32,948		679		43,800		12,093
Reductions related to settlements with tax authorities	(9,800)		(442)		(29,362)		(980)
Expiration of statute of limitations	(52,634)		—		(4,584)		(19,568)
Balance, end of the period	$	232,004	$	264,323	$	264,810	$	168,062

The total gross unrecognized tax benefit ending balance as of June 30, 2022, June 30, 2021, April 30, 2021 and April 30, 2020, includes $203.7 million, $224.5 million, $214.9 million and $132.3 million, respectively, which if recognized, would impact our effective tax rate. The difference from the gross unrecognized tax benefits recorded and those in the table above results from the requirement to adjust the gross balances for such items as federal, state and foreign deferred items and deductible interest and taxes. Reductions from prior year are primarily related to expirations of statute of limitations and settlements with taxing authorities.

We believe it is reasonably possible that the balance of unrecognized tax benefits could decrease by approximately $33.6 million within the next twelve months. The anticipated decrease is due to the expiration of statutes of limitations, anticipated closure of various tax matters currently under examination, and settlements

with tax authorities. For such matters where a change in the balance of unrecognized tax benefits is not yet deemed reasonably possible, no estimate has been included. Interest and penalties, if any, accrued on the unrecognized tax benefits are reflected in income tax expense. The total gross interest and penalties accrued as of June 30, 2022, June 2021 and April 30, 2021 totaled $22.7 million, $26.4 million and $24.9 million, respectively.