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INCOME TAXES

12 Months Ended

Jun. 30, 2021

10. INCOME TAXES

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


	2019		2020		2021
Pre-tax income:
United States	$	6,575	$	41,025	$	34,323
Foreign		79,589		45,097		64,317
Total pre-tax income	$	86,164	$	86,122	$	98,640

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


	2019		2020		2021
Current:
Federal	$	541	$	2,661	$	4,407
State		883		577		1,190
Foreign		28,480		8,063		18,562
Total current provision		29,904		11,301		24,159
Deferred:
Federal	$	(1,697)	$	2,882	$	679
State		1,214		45		464
Foreign		(8,053)		(3,358)		(711)
Total deferred provision (benefit)		(8,536)		(431)		432
Total provision	$	21,368	$	10,870	$	24,591

As of June 30, 2020 and 2021, our liability for uncertain tax positions was $6.0 million and $10.0 million, respectively. The amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $9.4 million.

We recognize potential interest and penalties related to income tax matters in income tax expense. As of June 30, 2021, we had accrued $1.4 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 2017 for federal purposes, fiscal years after 2016 for state purposes and fiscal years after 2009 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 2020 and 2021 is as follows (in thousands).


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
Additions on tax positions for the current year		5,937
Additions on tax positions from prior years		678
Reduction in tax positions from prior year		(248)
Balance at June 30, 2021	$	19,677

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


	June 30,
	2020		2021
Deferred income tax assets:
Tax credit carryforwards	$	15,277	$	16,767
Net operating loss carryforwards		4,241		3,745
Customer advances		2,725		2,819
Allowance for doubtful accounts		2,927		5,266
Inventory reserve		11,999		10,391
Inventory capitalization		2,762		489
Accrued liabilities		4,879		4,466
Operating lease liabilities		7,243		10,522
Stock and deferred compensation		9,911		12,323
Other assets		2,178		2,685
Total deferred income tax assets		64,142		69,473
Valuation allowance		(17,371)		(16,177)
Net deferred income tax assets		46,771		53,296
Deferred income tax liabilities:
Depreciation		(1,459)		(2,137)
Amortization of intangible assets		(27,907)		(31,779)
Withholding tax on unrepatriated foreign earnings		(5,114)		(6,851)
Operating lease ROU assets		(7,295)		(10,355)
State transition tax		(1,754)		(1,754)
Convertible debt		(4,432)		(2,384)
Prepaid expenses		(1,399)		(929)
Other liabilities		(143)		(107)
Total deferred income tax liabilities		(49,503)		(56,296)
Net deferred income tax liability	$	(2,732)	$	(3,000)

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


	2020		2021
Long term deferred income tax asset, included in other assets	$	3,114	$	4,157
Long term deferred income tax liability		(5,846)		(7,157)
Net deferred income tax liability	$	(2,732)	$	(3,000)

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


	2020		2021
Current taxes receivable and prepaid taxes, included in prepaid expenses and other current assets	$	15,614	$	10,383
Current taxes payable, included in other accrued expenses and current liabilities		(4,086)		(4,377)
Net tax receivable	$	11,528	$	6,006

As of June 30, 2021, we had state and foreign net operating loss carryforwards of approximately $25.7 million and $8.9 million, respectively. As of June 30, 2021, we had federal and state tax credit carryforwards of approximately $10.4 million and $8.9 million, respectively. Our credit carryforwards will begin to expire in the tax year ending June 30, 2034.

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, 2021, we recorded a net aggregated decrease of $1.2 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 expense of approximately $1.4 million and $4.2 million was recognized in fiscal 2020 and 2021, respectively.

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


	June 30,
	2019		2020		2021
Provision for income taxes at federal statutory rate	21.0	%	21.0	%	21.0	%
Research and development tax credits	(1.6)		(1.6)		(1.7)
Foreign income subject to tax at other than federal statutory rate	2.9		(0.8)		0.6
Stock compensation	(3.2)		(6.7)		(.9)
Officers’ compensation	3.5		4.4		5.8
Change in valuation allowance	(1.8)		(1.3)		(5.9)
Unrecognized tax expense	0.1		1.2		4.2
Tax on foreign currency gains and losses	0.2		2.1		(0.2)
State tax expense	1.6		1.1		1.2
U.S. tax on foreign earnings	1.0		(2.1)		(1.8)
Changes in prior year estimates	—		(6.4)		—
Global intangible low-taxed income, net of foreign tax credits	1.0		1.8		0.5
Foreign Derived Intangible Income Benefit	(0.4)		(0.6)		(1.3)
Withholding tax on foreign earnings	—		—		3.4
Other	0.5		0.5		—
Effective income tax rate	24.8	%	12.6	%	24.9	%

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.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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