Income Taxes

The Company and its subsidiaries, prior to the spin-off, were included in former Parent’s tax returns in certain taxing jurisdictions. The provisions for income taxes for those certain jurisdictions were determined on a separate return basis and presented as such in these Consolidated Financial Statements.

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

The components of the deferred tax assets and liabilities as of June 30, 2015 and 2014, were as follows:



(Amounts in Thousands)	2015		2014
Deferred Tax Assets:
Receivables	$	138	$	185
Inventory	1,524		1,457
Employee benefits	164		174
Deferred compensation	7,786		8,850
Other current liabilities	712		408
Tax credit carryforwards	240		3,069
Goodwill	2,149		2,440
Net operating loss carryforward	5		564
Net foreign currency losses	2		81
Property and equipment	1,838		1,063
Miscellaneous	1,268		2,332
Valuation Allowance	—		(92		)
Total asset	$	15,826	$	20,531
Deferred Tax Liabilities:
Miscellaneous	$	353	$	199
Total liability	$	353	$	199
Net Deferred Income Taxes	$	15,473	$	20,332

Income tax benefits associated with the net operating loss carryforward expires in fiscal year 2023. Income tax benefits associated with tax credit carryforwards primarily expire from fiscal year 2016 to 2025.

The components of income before taxes on income are as follows:



	Year Ended June 30
(Amounts in Thousands)	2015		2014		2013
United States	$	1,195	$	5,412	$	6,638
Foreign	33,576		24,830		20,138
Total income before taxes on income	$	34,771	$	30,242	$	26,776

Foreign unremitted earnings of entities not included in the United States tax return have been included in the Consolidated Financial Statements without giving effect to the United States taxes that may be payable on distribution to the United States because it is not anticipated such earnings will be remitted to the United States. Under current applicable tax laws, if we chose to remit some or all of the funds we have designated as indefinitely reinvested outside the United States rather than making nontaxable repayments on our intercompany loans, the amount remitted would be subject to United States income taxes and applicable non-U.S. income and withholding taxes. Such earnings would also become taxable upon the sale or liquidation of these subsidiaries or upon remittance of dividends. The aggregate unremitted earnings of the Company’s foreign subsidiaries for which a deferred income tax liability has not been recorded was approximately $158 million as of June 30, 2015. Determination of the amount of unrecognized deferred tax liability on unremitted earnings is not practicable.

The provision for income taxes is composed of the following items:



	Year Ended June 30
(Amounts in Thousands)	2015			2014			2013
Currently Payable (Refundable):
Federal	$	186		$	(40	)	$	40
Foreign	6,586			4,505			2,861
State	108			519			239
Total current	$	6,880		$	4,984		$	3,140
Deferred Taxes:
Federal	$	(188	)	$	2,360		$	1,780
Foreign	1,957			(55		)	134
State	(83		)	(139		)	(186		)
Total deferred	$	1,686		$	2,166		$	1,728
Valuation allowance	—			(1,521		)	388
Total provision for income taxes	$	8,566		$	5,629		$	5,256

A reconciliation of the statutory U.S. income tax rate to the Company’s effective income tax rate follows:



	Year Ended June 30
	2015					2014					2013
(Amounts in Thousands)	Amount			%		Amount			%		Amount			%
Tax computed at U.S. federal statutory rate	$	12,170		35.0	%	$	10,585		35.0	%	$	9,372		35.0	%
State income taxes, net of federal income tax benefit	16			—		210			0.7		41			0.1
Foreign tax rate differential	(4,336		)	(12.5	)	(3,800		)	(12.6	)	(3,645		)	(13.6	)
Impact of foreign exchange rates on foreign income taxes	1,274			3.7		153			0.5		(72		)	(0.3	)
Foreign tax credits	(146		)	(0.4	)	(123		)	(0.4	)	(498		)	(1.9	)
Valuation allowance	—			—		(1,521		)	(5.0	)	388			1.4
Research credit	(421		)	(1.2	)	(187		)	(0.6	)	(347		)	(1.3	)
Spin-off costs	625			1.8		753			2.5		—			—
Other - net	(616		)	(1.8	)	(441		)	(1.5	)	17			0.2
Total provision for income taxes	$	8,566		24.6	%	$	5,629		18.6	%	$	5,256		19.6	%

During the year ended June 30, 2014, we recognized an income tax benefit, in thousands, of $1,521 from the release of valuation allowances on our foreign deferred tax assets, in thousands, of $1,399 and on our state deferred tax assets, in thousands, of $122. During the year ended June 30, 2013, we recognized income tax expense, in thousands, of $388 consisting of an increase in the valuation allowance on our foreign deferred tax assets, in thousands, of $408, partially offset by a benefit, in thousands, of $20 from the release of a portion of our valuation allowance on our state deferred tax assets.

Net cash payments (refunds) for income taxes were, in thousands, $11,783, $4,347 and $775 in fiscal years 2015, 2014, and 2013, respectively. Cash payments for fiscal years 2014 and 2013 include only payments in foreign jurisdictions as the cash payments for federal and state income taxes were submitted by former Parent.

Changes in the unrecognized tax benefit, excluding accrued interest and penalties, during fiscal years 2015, 2014, and 2013 were as follows:



(Amounts in Thousands)	2015			2014			2013
Beginning balance - July 1	$	792		$	965		$	870
Tax positions related to prior fiscal years:
Additions	—			92			10
Reductions	(792		)	—			—
Tax positions related to current fiscal year:
Additions	—			77			104
Reductions	—			—			—
Settlements	—			—			—
Lapses in statute of limitations	—			(342		)	(19		)
Ending balance - June 30	$	—		$	792		$	965
Portion that, if recognized, would reduce tax expense and effective tax rate	$	—		$	565		$	772

Unrecognized tax benefits for fiscal years 2014 and 2013 were allocated to us by former Parent. The unrecognized tax benefits at the spin-off date reverted back to former Parent for the prior fiscal years in which we were included in former Parent’s consolidate tax returns resulting in the reductions in the tax positions during fiscal year 2015. We do not expect the change in the amount of unrecognized tax benefits in the next 12 months to have a significant impact on our results of operations or financial position. We recognize interest and penalties related to unrecognized tax benefits in the Provision for Income Taxes line of the Consolidated Statements of Income.

Amounts accrued for interest and penalties were as follows:



	As of June 30
(Amounts in Thousands)	2015		2014		2013
Accrued Interest and Penalties:
Interest	$	—	$	65	$	72
Penalties	$	—	$	69	$	55

No interest or penalties expense was recognized in fiscal year 2015. Interest and penalties expense recognized in fiscal years 2014 and 2013 were, in thousands, $7 and $16, respectively.

In connection with the spin-off, the Company entered into a Tax Matters Agreement with former Parent that governs the Company’s rights and obligations after the spin-off with respect to tax liabilities and benefits, tax attributes, tax contests, and other tax sharing regarding income taxes, other tax matters, and related tax returns. The Company will continue to have joint and several liabilities with former Parent with the IRS and certain U.S. state tax authorities for U.S. federal income and state taxes for the taxable periods in which the Company was a part of former Parent’s consolidated group. For additional information, see Note 2 - Related Party Transactions of Notes to Consolidated Financial Statements. The Company, former Parent, or one of our wholly-owned subsidiaries, files U.S. federal income tax returns and income tax returns in various state, local, and foreign jurisdictions. Former Parent is no longer subject to any significant U.S. federal tax examinations by tax authorities for years before fiscal year 2012. We or former Parent are subject to various state and local income tax examinations by tax authorities for years after June 30, 2006 and various foreign jurisdictions for years after June 30, 2008.