
	2021		2020		2019
Current:
Federal	$	165	$	(19)	$	(106)
Foreign	4,686		3,633		2,398
State	45		30		37
Deferred:
Federal	(1,843)		(1,514)		1,139
Foreign	(1,390)		53		(172)
State	230		(341)		235
	$	1,893	$	1,842	$	3,531


	2021		2020		2019
Expected tax expense (benefit)	$	3,660	$	(4,199)	$	2,018
State taxes, net of federal effect	171		(1,042)		(5)
Foreign taxes, net of federal credits	1,424		1,210		(1,055)
Change in valuation allowance	—		1,996		1,744
Tax reserve adjustments	(63)		1,946		(66)
Return to provision and other adjustments	165		372		(57)
Goodwill impairment	—		130		—
Tax rate change applied to deferred tax balances	(675)		54		(129)
Global intangible low taxed income	(2,622)		1,558		1,121
Other permanent items	(167)		(183)		(40)
Actual tax expense	$	1,893	$	1,842	$	3,531

Beginning in fiscal 2019, the Company incorporated certain provisions of the Tax Cuts and Jobs Act (“the Act”) in the calculation of the tax provision and effective tax rate, including the provisions related to the Global Intangible Low Taxed Income (“GILTI”), Foreign Derived Intangible Income (“FDII”), Base Erosion Anti Abuse Tax (“BEAT”), as well as other provisions, which limit tax deductibility of expenses. Under the GILTI provisions, U.S. taxes are imposed on foreign income in excess of a deemed return on tangible assets of its foreign subsidiaries. The ability to benefit from a deduction and foreign tax credits against a portion of the GILTI income may be limited under the GILTI rules as a result of the utilization of net operating losses, foreign sourced income, and other potential limitations within the foreign tax credit calculation.

In July 2020, the IRS issued final regulations and additional proposed regulations that address the application of the high-taxed exclusion from GILTI. Under these regulations, the Company can make an annual election to exclude from its GILTI inclusion, income from its foreign subsidiaries that’s effective income tax rate exceeds 18.9% for that year. The regulations must be applied for tax years beginning after July 23, 2020 but companies have the option to apply retroactively for tax years beginning after December 31, 2017 and before July 23, 2020. In fiscal 2021 the Company recognized a tax benefit of ($2.6) million related to the impact of electing to apply the high-tax exclusion retroactively for fiscal 2019 and fiscal 2020.

The Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") was enacted in the United States on March 27, 2020. The CARES Act is an emergency economic stimulus package that includes spending and tax breaks to strengthen the United States economy and fund a nationwide effort to curtail the effect of COVID-19. While the CARES Act provides extensive tax changes in response to the COVID-19 pandemic, the provisions are not expected to have a significant impact on the Company’s financial results.

The tax rate of 10.9% on pre-tax income of $17.4 million in the year ended June 30, 2021 is lower than the U.S. statutory rate primarily as a result of the tax benefit recognized for the retroactive application of the GILTI high-tax exclusion to fiscal 2019 and fiscal 2020 and the impact of the United Kingdom's statutory rate increase from 17% to 25% on the Company's net deferred tax asset, offset by the jurisdictional mix of earnings, particularly from Brazil with a statutory tax rate of 34%.

The tax rate of a benefit of 9.2% on pre-tax losses of $20.0 million in the year ended June 30, 2020 is lower than the U.S. statutory rate primarily as a result of the GILTI provisions, non-deductible goodwill impairment, as well as changes in the jurisdictional mix of earnings, particularly Brazil with a statutory tax rate of 34%.The tax rate was also negatively impacted by the write-off of the long-term receivable previously established for competent authority relief for historic transfer pricing adjustments which the Company has determined is no longer feasible to pursue and an increase in the valuation allowance against foreign tax credits which the Company has determined are more likely than not to expire unutilized.

The tax rate of 36.7% on pre-tax income of $9.6 million in the year ended June 30, 2019 is higher than the U.S. statutory rate primarily as a result of the GILTI provisions, which became effective in fiscal 2019, as well as changes in the jurisdictional mix of earnings, particularly Brazil with a statutory tax rate of 34%.

Net deferred tax assets at June 30, 2021 were $19.1 million. While these deferred tax assets reflect the tax effect of temporary differences between book and taxable income in all jurisdictions in which the Company has operations, the majority of the assets relate to U.S. operations. U.S. net deferred assets are $23.4 million with a valuation allowance of $8.8 million. The Company has considered the positive and negative evidence to determine the need for a valuation allowance offsetting the deferred tax assets in the U.S. and has concluded that a partial valuation allowance is required against foreign tax credit

carryforwards due to the uncertainty of generating sufficient foreign source income to utilize those credits in the future and certain state net operating loss carryforward that will expire in the near future.

Key positive evidence considered include: a) domestic profitability in 2021 and 2019; b) cost saving plans are being implemented by the Company; c) indefinite federal loss carryforward periods and d) forecasted domestic profits for future years. The negative evidence considered is that fiscal years 2020 showed domestic book and tax losses due to the impact of the COVID-19 pandemic and charges recorded in the fourth quarter.

In fiscal 2021, the valuation allowance decreased by ($0.1) million primarily due to foreign currency fluctuations. In fiscal 2020, the valuation allowance increased by $2.1 million due to the impact of the fiscal 2020 domestic loss generated and revised forecasts of income on the projected utilization of foreign tax credits that will expire at various dates through 2028.


	2021		2020
Inventories	$	936	$	1,339
Employee benefits (other than pension)	1,469		684
Operating lease liabilities	1,004		1,111
Book reserves	541		695
Federal NOL, various carryforward periods	5,004		716
State NOL, various carryforward periods	2,072		1,719
Foreign NOL, various carryforward periods	707		388
Foreign tax credit carryforward, expiring 2023 – 2028	7,329		7,212
Pension benefits	8,253		13,175
Retiree medical benefits	481		1,961
Depreciation	18		(186)
Intangibles	(91)		580
Right of use assets	(1,027)		(1,088)
Federal research and development and AMT credit carryforward	961		817
Contingency accruals	(1,275)		(698)
Other temporary taxable differences	(382)		—
Other temporary deductible differences	1,832		1,404
Total deferred tax assets	27,832		29,829
Valuation allowance	(8,759)		(8,811)
Net deferred tax asset	$	19,073	$	21,018

The Company is subject to U.S. federal income tax and various state, local and foreign income taxes in numerous jurisdictions. The Company’s domestic and international tax liabilities are subject to the allocation of revenues and expenses in different jurisdictions and the timing of recognizing revenues and expenses. Additionally, the amount of income taxes paid is subject to the Company’s interpretation of applicable tax laws in the jurisdictions in which it files.


Balance July 1, 2018	$	(10,882)
Increase for tax positions taken during the current period	(215)
Increase for tax positions taken during the prior period	5
Effect of exchange rate changes	16
Decrease relating to lapse of applicable statute of limitations	137
Balance June 30, 2019	(10,939)

Increase for tax positions taken during the current period	(326)
Decrease for tax positions taken during the prior period	(188)
Effect of exchange rate changes	299
Decrease relating to lapse of applicable statute of limitations	48
Balance June 30, 2020	(11,106)

Increase for tax positions taken during the current period	(494)
Increase for tax positions taken during the prior period	386
Effect of exchange rate changes	(207)
Decrease relating to lapse of applicable statute of limitations	61
Balance June 30, 2021	$	(11,360)

As of June 30, 2021, 2020 and 2019, the Company has unrecognized tax benefits of $11.4 million, $11.1 million, and $10.9 million, respectively, of which $7.9 million, $7.7 million and $5.6 million, respectively, would favorably impact the effective tax rate if recognized. The long-term tax obligations as of June 30, 2021, 2020 and 2019 relate primarily to transfer pricing adjustments.

The Company has identified uncertain tax positions at June 30, 2021 for which it is possible that the total amount of unrecognized tax benefits will decrease within the next twelve months by less than $0.1 million. The Company recognizes interest and penalties related to income tax matters in income tax expense and has booked $0.1 million in fiscal 2021 for interest expense.

The Company’s U.S. federal tax returns for years prior to fiscal 2018 are no longer subject to U.S. federal examination by the Internal Revenue Service; however, tax losses and credits carried forward from earlier years are still subject to review and adjustment. As of June 30, 2021, the Company has resolved all open income tax audits. In international jurisdictions, the years that may be examined vary by country. The Company’s most significant foreign subsidiary in Brazil is subject to audit for the calendar years 2015 through 2020.

The federal tax loss carryforward of $23.8 million has an unlimited carryforward period. The state tax loss carryforwards tax effected of $2.0 million expires at various times in years 2022 through 2041 and $0.1 can be carried forward indefinitely. The state tax credit carryforwards of $0.4 million expires in the years 2023 through 2036 and $0.3 million can be carried forward indefinitely. The foreign tax credit carryforward of $7.3 million expires in the years 2023 through 2028. The research and development tax credit carryforward of $1.0 million expires in the years 2029 through 2041. The foreign tax loss carryforwards of $3.5 million can be carried forward indefinitely.

At June 30, 2021, the estimated amount of total unremitted earnings of foreign subsidiaries is $77.7 million. The foreign subsidiaries do not have the cash on hand to repatriate that amount. Meanwhile the Company has no plans to repatriate prior year earnings of its foreign subsidiaries and, accordingly, does not believe it is practicable to estimate the unrecognized deferred taxes related to these earnings as they are indefinitely reinvested. Cash held in foreign subsidiaries is not available for use in the U.S. without the likely U.S. federal and state income and withholding tax consequences.