Income Taxes

12 Months Ended

Jun. 30, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Income before provision for income taxes consists of the following:

	Year Ended June 30,
	2021		2020		2019
	(Dollars in Thousands)
Domestic	$	376,582	$	274,066	$	297,002
Foreign	8,164		5,291		4,525
Income before provision for income taxes	$	384,746	$	279,357	$	301,527

The provision for income taxes shown in the accompanying consolidated statements of operations is composed of the following:

	Year Ended June 30,
	2021		2020		2019
	(Dollars in Thousands)
Federal—
Current	$	45,643	$	17,048	$	64,194
Deferred	13,039		28,101		(27,267)
State—
Current	2,821		1,367		3,246
Deferred	(41)		500		(1,033)
Foreign—
Current	4,004		2,797		1,549
Deferred	(522)		(127)		(524)
	$	64,944	$	49,686	$	40,165

Our tax expense for fiscal 2021 was unfavorably impacted primarily by the higher pre-tax book income, offset by the FDII deduction, tax credits, and the recognition of excess tax benefits related to stock-based compensation.

The provision for income taxes differs from that based on the federal statutory rate due to the following:

	Year Ended June 30,
	2021		2020		2019
	(Dollars in Thousands)
Federal tax provision at statutory rate	$	80,797	$	58,665	$	63,321
State income taxes	2,226		1,225		1,533
Foreign-derived intangible income (FDII)	(13,805)		(13,581)		(20,326)
Global intangible low-taxed income (GILTI)	49		404		797
Effect of foreign operations	8,950		6,148		7,395
Impact of tax accounting method change	—		6,433		—
Foreign taxes and rate differences	(566)		404		514
Stock-based compensation	(2,415)		33		(3,774)
Tax credits	(11,301)		(7,969)		(9,677)
Uncertain tax positions	89		(3,236)		1,055
Valuation allowance	1,171		504		(550)
Other, net	(251)		656		(123)
Provision for income taxes	$	64,944	$	49,686	$	40,165

Net deferred tax liabilities consist of the following at June 30, 2021 and 2020:

	Year Ended June 30,
	2021		2020
	(Dollars in Thousands)
Deferred tax assets:
State and foreign credits	$	6,684	$	4,922
Net operating loss carryforwards	4,511		1,200
Deferred revenue	3,876		4,596
Other reserves and accruals	8,663		7,465
Intangible assets	957		982
Property, leasehold improvements, and other basis differences	5,202		5,514
Other temporary differences	452		925
	30,345		25,604
Deferred tax liabilities:
Contract assets and costs	(182,809)		(158,538)
Deferred revenue	(15,944)		(27,066)
Intangible assets	(7,795)		(6,815)
Property, leasehold improvements, and other basis differences	(5,122)		(5,223)
	(211,670)		(197,642)
Valuation allowance	(9,914)		(6,205)
Net deferred tax liabilities	$	(191,239)	$	(178,243)

Reflected in the deferred tax assets above at June 30, 2021, we have foreign net operating loss carryforwards of $4.5 million, with unlimited carryforwards, and state and foreign research and development credits of $6.7 million which begin to expire in 2026.

Our valuation allowance for deferred tax assets was $9.9 million and $6.2 million as of June 30, 2021 and 2020, respectively. The most significant portion of the valuation allowance as of June 30, 2021 is attributable to a reserve against state R&D tax credits of $5.4 million.

For fiscal 2021, our income tax provision included amounts determined under the provisions of ASC 740 intended to satisfy additional income tax assessments, including interest and penalties, that could result from any tax return positions for which the likelihood of sustaining the position on audit does not meet a threshold of "more likely than not." Tax liabilities were recorded as a component of our income taxes payable and other non-current liabilities. The ultimate amount of taxes due will not be known until examinations are completed and settled or the audit periods are closed by statutes.

A reconciliation of the reserve for uncertain tax positions is as follows:

	Year Ended June 30,
	2021		2020		2019
	(Dollars in Thousands)
Uncertain tax positions, beginning of year	$	2,106	$	5,380	$	3,931
Gross (decreases) increases —tax positions in prior period	—		(2,216)		407
Gross increases—tax positions in current period	304		—		1,789
Gross decreases—lapse of statutes	(317)		(1,032)		(740)
Currency translation adjustment	45		(26)		(7)
Uncertain tax positions, end of year	$	2,138	$	2,106	$	5,380

At June 30, 2021, the total amount of unrecognized tax benefits is $2.1 million. Upon being recognized, $1.9 million would reduce the effective tax rate. Our policy is to recognize interest and penalties related to income tax matters as provision

for (benefit from) income taxes. At June 30, 2021, we had approximately $0.3 million of accrued interest and $0.1 million of penalties related to uncertain tax positions. We recorded a benefit for interest and penalties of approximately $0.1 million during fiscal 2021.

We are subject to income tax in many jurisdictions outside the U.S. We are no longer under examination by the taxing authority regarding any U.S. federal income tax returns for fiscal years prior to 2018. Our operations in certain jurisdictions remain subject to examination for tax years 2010 to 2020, some of which are currently under audit by local tax authorities. The resolutions of these audits are not expected to be material to our consolidated financial statements.