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INCOME TAXES

12 Months Ended

Jun. 30, 2020

INCOME TAXES

10. INCOME TAXES

The following is a geographical breakdown of income before the provision for income taxes (in thousands):


		2018			2019			2020
Pre-tax income (loss):
United States		$	(40,335)		$	6,575		$	41,025
Foreign			77,189			79,589			45,097
Total pre-tax income		$	36,854		$	86,164		$	86,122

Our provision (benefit) for income taxes consists of the following (in thousands):


		2018			2019			2020
Current:
Federal		$	8,518		$	541		$	2,661
State			707			883			577
Foreign			30,643			28,480			8,063
Total current provision			39,868			29,904			11,301
Deferred:
Federal		$	35,957		$	(1,697)		$	2,882
State			338			1,214			45
Foreign			(10,182)			(8,053)			(3,358)
Total deferred provision (benefit)			26,113			(8,536)			(431)
Total provision		$	65,981		$	21,368		$	10,870

As of June 30, 2019 and 2020, our liability for uncertain tax positions was $4.6 million and $6.0 million, respectively. The $6.0 million represents the amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate.

We recognize potential interest and penalties related to income tax matters in income tax expense. As of June 30, 2020, we had accrued $0.1 million for interest and penalties. Our uncertain tax positions are related to tax years that remain subject to examination by the relevant tax authorities. These include fiscal years after 2016 for federal purposes, fiscal years after 2015 for state purposes and fiscal years after 2008 for various foreign jurisdictions. Facts and circumstances could arise that could cause us to reduce the liability for unrecognized tax benefits, including, but not limited to, settlement of income tax positions or expiration of statutes of limitation. Since the ultimate resolution of uncertain tax positions depends on many factors and assumptions, we are not able to estimate the range of potential changes in the liability for unrecognized tax benefits or the timing of such changes.

A summary of activity of unrecognized tax benefits for fiscal 2019 and 2020 is as follows (in thousands).


Balance at June 30, 2018		$	10,498
Additions on tax positions for the current year			940
Additions on tax positions from prior years			346
Reduction in tax positions from prior year			(398)
Balance at June 30, 2019		$	11,386
Additions on tax positions for the current year			1,764
Additions on tax positions from prior years			451
Reduction in tax positions from prior year			(291)
Balance at June 30, 2020		$	13,310

The Tax Cuts and Jobs Act (the “Tax Act”) was enacted on December 22, 2017 and significantly changed U.S. tax law and included numerous provisions that affect our business. In the fiscal year ended June 30, 2018, we recorded tax expense of $55 million related to the enactment of the Tax Act.

Deferred income tax assets (liabilities) consisted of the following (in thousands):


		June 30,
		2019			2020
Deferred income tax assets:
Tax credit carryforwards		$	14,785		$	15,277
Net operating loss carryforwards			9,331			4,241
Customer advances			3,365			2,725
Allowance for doubtful accounts			4,287			2,927
Inventory reserve			11,503			11,999
Inventory capitalization			2,721			2,762
Accrued liabilities			5,953			4,879
Operating lease liabilities			—			7,243
Stock and deferred compensation			12,737			9,911
Other assets			3,157			2,178
Total deferred income tax assets			67,839			64,142
Valuation allowance			(23,377)			(17,371)
Net deferred income tax assets			44,462			46,771
Deferred income tax liabilities:
Depreciation			(4,866)			(1,459)
Amortization of intangible assets			(26,056)			(27,907)
Withholding tax on unrepatriated foreign earnings			(5,114)			(5,114)
Operating lease ROU assets			—			(7,295)
State transition tax			(1,754)			(1,754)
Convertible debt			(6,443)			(4,432)
Prepaid expenses			(3,903)			(1,399)
Other liabilities			(308)			(143)
Total deferred income tax liabilities			(48,444)			(49,503)
Net deferred income tax liability		$	(3,982)		$	(2,732)

The components of the net deferred income tax asset are classified in the consolidated balance sheets as follows (in thousands):


		2019			2020
Long term deferred income tax asset, included in other assets		$	3,997		$	3,114
Long term deferred income tax liability			(7,979)			(5,846)
Net deferred income tax liability		$	(3,982)		$	(2,732)

The components of current taxes receivable and payable and prepaid taxes are classified in the consolidated balance sheets as follows (in thousands):


		2019			2020
Current taxes receivable and prepaid taxes, included in prepaid expenses and other current assets		$	4,344		$	15,614
Current taxes payable, included in other accrued expenses and current liabilities			(3,094)			(4,086)
Net tax receivable (payable)		$	1,250		$	11,528

As of June 30, 2020, we had state and foreign net operating loss carryforwards of approximately $36.5 million and $9.4 million, respectively. As of June 30, 2020, we had federal and state tax credit carryforwards of approximately $14.3 million and $8.1 million, respectively. Our credit carryforwards will begin to expire in the tax year ending June 30, 2030.

We have established valuation allowances that relate to the net operating loss of certain subsidiaries, capital losses, and tax credits. During the year ended June 30, 2020, we recorded a net aggregated decrease of $6.0 million to these valuation allowances. We review the adequacy of individual valuation allowances and release such allowances when it is determined that it is more likely than not that the related benefits will be realized.

We recognized all excess tax benefits and tax deficiencies as income tax expense or benefit in the current year. An income tax benefit of approximately $3.1 million and expense of approximately $1.4 million was recognized in fiscal 2019 and 2020, respectively.

The consolidated effective income tax rate differs from the federal statutory income tax rate due primarily to the following:


		June 30,
		2018		2019		2020
Provision for income taxes at federal statutory rate		28.1	%	21.0	%	21.0	%
Research and development tax credits		(1.4)		(1.6)		(1.6)
Foreign income subject to tax at other than federal statutory rate		(4.8)		2.9		(0.8)
Stock compensation excess tax benefit		(8.8)		(3.2)		(6.7)
Officers’ compensation		—		3.5		4.4
Change in valuation allowance		19.6		(1.8)		(1.3)
Unrecognized tax (benefit) expense		(6.8)		0.1		1.2
Meals and entertainment		1.5		0.4		0.3
Tax on foreign currency gains and losses		(0.1)		0.2		2.1
State tax expense		(1.3)		1.6		1.1
U.S. tax on foreign earnings		2.5		1.0		(2.1)
Changes in prior year estimates		—		—		(6.4)
Mexico imputed income or expense		(3.5)		(0.5)		—
Global intangible low-taxed income, net of foreign tax credits		—		—		1.8
Remeasurement of U.S. net deferred tax assets from 35% to 21%		16.0		—		—
Deemed repatriation of non-U.S. earnings		102.2		—		—
Withholding tax on deemed repatriation foreign earnings		35.8		—		—
Other		—		1.2		(0.4)
Effective income tax rate		179.0	%	24.8	%	12.6	%

The provision for income taxes consists of provisions for federal, state, and foreign income taxes. We operate in an international environment with significant operations in various locations outside the U.S. Accordingly, the consolidated income tax rate is a composite rate reflecting the earnings in the various locations and the applicable rates.