Entity information:
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, 2017 and 2016, were as follows:
(Amounts in Thousands)
2017
 
2016
Deferred Tax Assets:
 

 
 

Receivables
$
112

 
$
116

Inventory
1,792

 
1,288

Employee benefits
190

 
180

Deferred compensation
8,226

 
7,075

Other current liabilities
727

 
783

Tax credit carryforwards
749

 
700

Goodwill
1,421

 
1,823

Net operating loss carryforward
1,597

 
845

Net foreign currency losses
75

 
—

Property and equipment
1,774

 
2,174

Miscellaneous
1,387

 
890

Total asset
$
18,050

 
$
15,874

Deferred Tax Liabilities:
 
 
 
Net foreign currency gains
$
—

 
$
8

Miscellaneous
1,962

 
258

Total liability
$
1,962

 
$
266

Net Deferred Income Taxes
$
16,088

 
$
15,608


Income tax benefits associated with the net operating loss carryforwards expire from fiscal year 2023 to 2036. Income tax benefits associated with tax credit carryforwards primarily expire from fiscal year 2017 to 2026. No valuation allowances were recognized on deferred tax assets as of June 30, 2017 or 2016.
The components of income before taxes on income are as follows:
 
Year Ended June 30
(Amounts in Thousands)
2017
 
2016
 
2015
United States
$
10,051

 
$
1,919

 
$
1,195

Foreign
34,204

 
26,057

 
33,576

Total income before taxes on income
$
44,255

 
$
27,976

 
$
34,771


Foreign unremitted earnings of entities not included in the U.S. tax return have been included in the Consolidated Financial Statements without giving effect to the U.S. 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 U.S. 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 $214 million as of June 30, 2017. 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)
2017
 
2016
 
2015
Currently Payable:
 

 
 

 
 

Federal
$
2,696

 
$
280

 
$
186

Foreign
8,130

 
5,848

 
6,586

State
134

 
50

 
108

Total current
$
10,960

 
$
6,178

 
$
6,880

Deferred Taxes:
 

 
 

 
 

Federal
$
6

 
$
153

 
$
(188
)
Foreign
(631
)
 
(501
)
 
1,957

State
(259
)
 
(141
)
 
(83
)
Total deferred
$
(884
)
 
$
(489
)
 
$
1,686

Total provision for income taxes
$
10,076

 
$
5,689

 
$
8,566


A reconciliation of the statutory U.S. income tax rate to the Company’s effective income tax rate follows:
 
Year Ended June 30
 
2017
 
2016
 
2015
(Amounts in Thousands)
Amount
 
%
 
Amount
 
%
 
Amount
 
%
Tax computed at U.S. federal statutory rate
$
15,489

 
35.0
 %
 
$
9,791

 
35.0
 %
 
$
12,170

 
35.0
 %
State income taxes, net of federal income tax benefit
(81
)
 
(0.2
)
 
(59
)
 
(0.2
)
 
16

 
—

Foreign tax rate differential
(3,832
)
 
(8.7
)
 
(2,998
)
 
(10.7
)
 
(4,482
)
 
(12.9
)
Impact of foreign exchange rates on foreign income taxes
(613
)
 
(1.4
)
 
1,026

 
3.7

 
1,274

 
3.7

Foreign subsidiary capitalization
—

 
—

 
(1,801
)
 
(6.4
)
 
—

 
—

Research credit
(348
)
 
(0.8
)
 
(320
)
 
(1.2
)
 
(421
)
 
(1.2
)
Spin-off costs
—

 
—

 
—

 
—

 
625

 
1.8

Other - net
(539
)
 
(1.1
)
 
50

 
0.1

 
(616
)
 
(1.8
)
Total provision for income taxes
$
10,076

 
22.8
 %
 
$
5,689

 
20.3
 %
 
$
8,566

 
24.6
 %

During the year ended June 30, 2016, we recognized a foreign tax benefit, in thousands, of $1,801 as a result of a favorable tax ruling related to the fiscal year 2015 capitalization of our Romania subsidiary.
Net cash payments for income taxes were, in thousands, $5,896, $8,975 and $11,783 in fiscal years 2017, 2016, and 2015, respectively.
Changes in the unrecognized tax benefit, excluding accrued interest and penalties, during fiscal years 2017, 2016, and 2015 were as follows:
(Amounts in Thousands)
2017
 
2016
 
2015
Beginning balance - July 1
$
46

 
$
—

 
$
792

Tax positions related to prior fiscal years:
 

 
 

 
 

Additions
56

 
46

 
—

  Reductions
—

 
—

 
(792
)
Tax positions related to current fiscal year:
 

 
 

 
 

Additions
—

 
—

 
—

Reductions
—

 
—

 
—

Settlements
—

 
—

 
—

Lapses in statute of limitations
—

 
—

 
—

Ending balance - June 30
$
102

 
$
46

 
$
—

Portion that, if recognized, would reduce tax expense and effective tax rate
$
85

 
$
37

 
$
—



Unrecognized tax benefits at the beginning of fiscal year 2015 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 consolidated 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 Provision for Income Taxes on the Consolidated Statements of Income.
Interest and penalties accrued for unrecognized tax benefits as of June 30, 2017, 2016, and 2015 and expenses related to interest and penalties in fiscal years 2017, 2016, and 2015 were not material.
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 2014. We or former Parent are subject to various state and local income tax examinations by tax authorities for years after June 30, 2012 and various foreign jurisdictions for years after June 30, 2011.