Income Taxes

12 Months Ended

Jun. 30, 2017

Income Tax Disclosure [Abstract]

Income Taxes

Note 7. Income Taxes

The components of earnings (losses) before income taxes were as follows:

Year Ended June 30,	2017			2016			2015
($000)
U.S. loss	$	(6,944	)	$	(5,809	)	$	(5,326	)
Non-U.S. income		125,732			95,764			84,438
Earnings before income taxes	$	118,788		$	89,955		$	79,112

The components of income tax expense were as follows:

Year Ended June 30,	2017			2016			2015
($000)
Current:
Federal	$	2,133		$	3,704		$	(146	)
State		253			5			86
Foreign		22,312			19,783			16,978
Total Current	$	24,698		$	23,492		$	16,918
Deferred:
Federal	$	(6,963	)	$	2,759		$	(2,762	)
State		(1,251	)		1,302			(251	)
Foreign		7,030			(3,084	)		(768	)
Total Deferred	$	(1,184	)	$	977		$	(3,781	)
Total Income Tax Expense	$	23,514		$	24,469		$	13,137

Principal items comprising deferred income taxes were as follows:

June 30,	2017			2016
($000)
Deferred income tax assets
Inventory capitalization	$	6,338		$	6,814
Non-deductible accruals		1,705			2,212
Accrued employee benefits		9,738			15,543
Net-operating loss and credit carryforwards		53,048			43,516
Share-based compensation expense		12,386			11,693
Other		1,761			1,770
Valuation allowances		(42,562	)		(42,641	)
Total deferred income tax assets	$	42,414		$	38,907
Deferred income tax liabilities
Tax over book accumulated depreciation	$	(7,803	)	$	(9,759	)
Intangible assets		(38,108	)		(29,628	)
Tax on unremitted earnings		(6,210	)		(797	)
Other		(2,615	)		(1,978	)
Total deferred income tax liabilities	$	(54,736	)	$	(42,162	)
Net deferred income taxes	$	(12,322	)	$	(3,255	)

The reconciliation of income tax expense at the statutory federal rate to the reported income tax expense is as follows:

Year Ended June 30,	2017			%			2016			%			2015			%
($000)
Taxes at statutory rate	$	41,576			35		$	31,484			35		$	27,689			35
Increase (decrease) in taxes resulting from:
State income taxes-net of federal benefit		(641	)		-			864			1			(196	)		-
Taxes on non U.S. earnings		(12,907	)		(11	)		(13,860	)		(15	)		(11,687	)		(15	)
Valuation allowance		(806	)		(1	)		8,464			9			678			1
Research and manufacturing incentive deductions		(3,346	)		(3	)		(3,074	)		(3	)		(2,573	)		(3	)
Other		(362	)		-			591			-			(774	)		(1	)
	$	23,514			20		$	24,469			27		$	13,137			17

During the fiscal years ended June 30, 2017, 2016, and 2015, net cash paid by the Company for income taxes was $23.6 million, $18.5 million, and $13.0 million, respectively.

Our foreign subsidiaries in the Philippines operate under various tax holiday arrangements.  The benefits of such arrangements phase out through the fiscal year ended June 30, 2019.  The impact of the tax holidays on our effective rate is a reduction in the rate of 0.31%, 0.37% and 0.22% for the fiscal years ended June 30, 2017, 2016 and 2015, respectively, and the impact of the tax holidays on diluted earnings per share is immaterial.

The cumulative amount of the Company’s foreign undistributed net earnings for which no deferred taxes have been provided was approximately $715 million at June 30, 2017. If the earnings of such foreign subsidiaries were not indefinitely reinvested, an additional deferred tax liability of approximately $108 million would have been required as of June 30, 2017. It is the Company’s intention to permanently reinvest substantially all of its undistributed earnings of its foreign subsidiaries; therefore, no provision has been made for future income taxes on the undistributed earnings of the majority of foreign subsidiaries, as they are considered indefinitely reinvested. The Company has provided a deferred tax liability for future income taxes on the earnings of certain foreign subsidiaries as these earnings are planned to be repatriated.

The Company has the following gross operating loss carryforwards and tax credit carryforwards as of June 30, 2017:

Type	Amount		Expiration Date
($000)
Tax credit carryforwards:
Federal research and development credits	$	10,953	June 2019-June 2037
Foreign tax credits		4,539	June 2024-June 2027
State tax credits		4,820	June 2018-June 2037
Operating loss carryforwards:
Loss carryforwards - federal	$	100,922	June 2020-June 2037
Loss carryforwards - state		71,536	June 2018-June 2037
Loss carryforwards - foreign		2,610	June 2018-June 2024

The Company has recorded a valuation allowance against the majority of the loss and credit carryforwards. The Company’s federal loss carryforwards, federal research and development credit carryforwards, and certain state tax credits resulted from the Company’s acquisitions are subject to various annual limitations under Section 382 of the Internal Revenue Code.

Changes in the liability for unrecognized tax benefits for the fiscal years ended June 30, 2017, 2016 and 2015 were as follows:

	2017			2016			2015
($000)
Balance at Beginning of Year	$	5,559		$	4,022		$	2,775
Increases in current year tax positions		895			2,146			2,450
Increases in prior year tax positions		2,605			190		203
Decreases in prior year tax positions		-			(67	)		-
Settlements		(1,143	)		-			-
Expiration of statute of limitations		(339	)		(732	)		(1,406	)
Balance at End of Year	$	7,577		$	5,559		$	4,022

The Company classifies all estimated and actual interest and penalties as income tax expense. During fiscal year 2017, there was $0.5 million of interest and penalties within income tax expense. During the fiscal year 2016, there was no interest and penalties within income tax expense.  During the fiscal year 2015, there was a benefit of $0.1 million of interest and penalties within tax expense.  The Company had $0.3 million, $0.1 million, and $0.1 million of interest and penalties accrued at June 30, 2017, 2016, and 2015, respectively. The Company has classified the uncertain tax positions as non-current income tax liabilities as the amounts are not expected to be paid within one year. Including tax positions for which the Company determined that the tax position would not meet the more likely than not recognition threshold upon examination by the tax authorities based upon the technical merits of the position, the total estimated unrecognized tax benefit that, if recognized, would affect our effective tax rate was approximately $1.3 million and $0.5 million at June 30, 2017 and 2016, respectively. The Company expects a decrease of $0.4 million of unrecognized tax benefits during the next 12 months due to the expiration of statutes of limitation.

Fiscal years 2014 to 2017 remain open to examination by the Internal Revenue Service, fiscal years 2012 to 2017 remain open to examination by certain state jurisdictions, and fiscal years 2007 to 2017 remain open to examination by certain foreign taxing jurisdictions. The Company’s subsidiary in Germany has been notified of an examination to start in fiscal year 2018. The Company believes its income tax reserves for these tax matters are adequate.